Final answer:
The taxpayer's investment in an activity adjusted for certain items is equal to their taxable income.
Step-by-step explanation:
The taxpayer's investment in an activity adjusted for certain items such as income, debt, and investments is equal to their taxable income.
To calculate taxable income, we start with the adjusted gross income and subtract deductions and exemptions. Then, different tax rates may apply based on income levels, and tax credits and the alternative minimum tax may also need to be taken into account.
Therefore, the taxpayer's investment in an activity, after adjusting for these items, is represented by their taxable income.