Duncan purchased State of Wisconsin general-purpose bonds at a cost of $3,400 in 2015.He receives $170 interest on the bonds in 2015,2016,and 2017.In 2017,he sells the bonds for $3,800.Duncan excludes the bond interest,but must include a $400 capital gain in his 2017 gross income.Which of the following Concepts,Constructs,and/or Doctrines help in forming the basis for this treatment?
I.Capital Recovery Concept.
II.Legislative Grace Concept.

Question

Duncan purchased State of Wisconsin general-purpose bonds at a cost of $3,400 in 2015.He receives $170 interest on the bonds in 2015,2016,and 2017.In 2017,he sells the bonds for $3,800.Duncan excludes the bond interest,but must include a $400 capital gain in his 2017 gross income.Which of the following Concepts,Constructs,and/or Doctrines help in forming the basis for this treatment?
I.Capital Recovery Concept.
II.Legislative Grace Concept.
​

Quizplus · Accepted Answer

The Capital Recovery Concept is applicable here because it allows Duncan to receive tax-free interest until he recovers his initial investment of $3,400. Once he has recovered this amount, any additional proceeds from the sale of the bonds are treated as capital gains. The Legislative Grace Concept is also applicable because the tax treatment of bond interest and gains is based on specific laws and regulations set forth by the government. Therefore, both statements are correct.

Duncan Purchased State of Wisconsin General-Purpose Bonds at a Cost