Accredited Wealth Management Advisor (AWMA) Exam 2 Practice Test

The main idea being tested is how holding period changes how capital gains are taxed. If you sell an asset you’ve held for one year or less, the gain is taxed at ordinary income tax rates—the same brackets that apply to wages. If you hold the asset longer than one year, the gain qualifies for long-term capital gains rates, which are generally lower and depend on your taxable income and filing status (typically 0%, 15%, or 20%), with a possible 3.8% net investment income tax for higher earners. This is why the correct statement says short-term gains are taxed as ordinary income and long-term gains have reduced rates after a year. The other descriptions don’t reflect the holding-period distinction—long-term gains aren’t taxed at ordinary rates, and short-term gains aren’t tax-free.