Ordinary income can be defined as the income earned from providing services or the sale of goods. This category includes income earned from interest, wages, rents, royalties and similar income streams. Ordinary income is taxed at different rates depending on the amount of income received by a taxpayer in a given tax year.
Capital gains are usually associated with the sale or exchange of property characterized as capital assets. The amount of gain is measured as the difference between the amount received by the taxpayer on the sale less the original purchase price, adjusted through the date of the sale (purchase price plus any improvements less depreciation taken).
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