Earned Income Tax Credit (EITC) qualification

[BK2000]

Hello, I have a question on Earned Income Tax Credit (EITC) qualification after having a debate with friends.  One of IRS' requirements is that if the Investment Income is more than $3,650 in 2020, you are disqualified.  And Investment Income includes Interest, Dividends, Capital gain income, Rent & royalty, Passive income.

Investment Income = Int & Div + Cap gains + Other

Let’s use this simple example:

* Int & Div = $4,000

* Capital gains = – $1,000 (loss)

* Others items: none

Which one of the following is correct to determine the EITC qualification?

Approach-A) This was my immediate thinking:

Investment Income = 4000 - 1000 = $3,000 therefore Qualified for EITC

Approach-B) My interpretation of the IRS assistant calculator info which says to include “Capital gain income (not losses)”:

Investment Income = 4000 + 0 = $4,000 therefore Disqualified for EITC

Resource: IRS assistant: Use the EITC Assistant | Internal Revenue Service (irs.gov)

Thank you.

[Bsch4477 · Accepted solution]

Approach B is correct. You cannot apply a capital loss. 

fYI. For tax year 2021 up to $10,000 of investment income will be allowed.