Which of the following amounts signifies the taxable income retained by a beneficiary from an inherited asset?

The taxable income retained by a beneficiary from an inherited asset is classified as long-term capital gain. When an asset is inherited, it typically receives a step-up in basis, which means the beneficiary's basis in the asset is adjusted to its fair market value at the date of the decedent's death. This adjustment allows the beneficiary to potentially sell the asset without incurring significant capital gains tax, as long as the asset is sold for a value equal to or greater than this stepped-up basis.

If the beneficiary sells the inherited asset, any gain realized will be treated as long-term capital gain, regardless of how long the beneficiary held the asset before selling, since inherited property is always considered long-term. This is a crucial aspect of tax law regarding inherited assets, providing tax efficiency by allowing beneficiaries to avoid tax liabilities associated with short-term gains, which would otherwise be higher if they had purchased the asset themselves.

In contrast, ordinary income, short-term capital gain, and nontaxable income do not accurately reflect the nature of gains derived from inherited assets and their tax implications. Ordinary income typically refers to wages or salary earnings, short-term capital gains apply to assets held for one year or less, and nontaxable income corresponds to income that