Duncan purchased State of Wisconsin general-purpose bonds at a cost of $3,400 in 2016. He receives $170 interest on the bonds in 2016, 2017, and 2018. In 2018, he sells the bonds for $3,800. Duncan excludes the bond interest, but must include a $400 capital gain in his 2018 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 2016. He receives $170 interest on the bonds in 2016, 2017, and 2018. In 2018, he sells the bonds for $3,800. Duncan excludes the bond interest, but must include a $400 capital gain in his 2018 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.
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Quizplus · Accepted Answer

The Capital Recovery Concept is reflected in the fact that only the $400 capital gain is included in Duncan's gross income in 2018, rather than the full amount of the bond proceeds. This concept allows taxpayers to recover their original investment before being subject to tax on any gain. The Legislative Grace Concept reflects the idea that tax laws are created by the government and are subject to change, and is not particularly relevant in this scenario.

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