Which of the following correctly describes the reporting of a long-term capital gain on the sale of stock?

The reporting of a long-term capital gain on the sale of stock is indeed fully includible in gross income. Long-term capital gains arise when an asset, such as stock, is held for more than one year before being sold. The Internal Revenue Service (IRS) requires taxpayers to report these gains on their tax returns, as they contribute to the overall taxable income.

Once reported, these gains are subject to taxation, but at preferential capital gains tax rates, which are typically lower than ordinary income rates. This distinction is important; while the income level may affect the rate at which long-term capital gains are taxed, the gains themselves must be declared as income when calculating the total taxable income.

Understanding that long-term capital gains are included in gross income is crucial for accurate tax reporting and planning strategies. This inclusion underpins the tax system's approach to encouraging long-term investment by taxing gains at a lower rate compared to short-term capital gains or ordinary income, thereby incentivizing investors to hold assets for extended periods.