diff --git a/changelog.d/e01100-agi-inclusion.fixed.md b/changelog.d/e01100-agi-inclusion.fixed.md
new file mode 100644
index 00000000000..da35fbfae7a
--- /dev/null
+++ b/changelog.d/e01100-agi-inclusion.fixed.md
@@ -0,0 +1 @@
+Include capital gain distributions received without Schedule D (non_sch_d_capital_gains) in IRS gross income and net investment income.
diff --git a/policyengine_us/parameters/gov/irs/gross_income/sources.yaml b/policyengine_us/parameters/gov/irs/gross_income/sources.yaml
index 43dde4ce80a..070cdb0b56a 100644
--- a/policyengine_us/parameters/gov/irs/gross_income/sources.yaml
+++ b/policyengine_us/parameters/gov/irs/gross_income/sources.yaml
@@ -9,6 +9,8 @@ values:
     - farm_rent_income
     - other_net_gain_gross_income
     - capital_gains
+    - non_sch_d_capital_gains
+    # Capital gain distributions received without filing Schedule D (Form 1040 line 7).
     - taxable_interest_income
     - rental_income
     # Royalties included in rental income
diff --git a/policyengine_us/parameters/gov/irs/investment/income/sources.yaml b/policyengine_us/parameters/gov/irs/investment/income/sources.yaml
index 782e0ad63f2..ef5b0eb67b7 100644
--- a/policyengine_us/parameters/gov/irs/investment/income/sources.yaml
+++ b/policyengine_us/parameters/gov/irs/investment/income/sources.yaml
@@ -5,6 +5,8 @@ values:
     - dividend_income
     - rental_income
     - loss_limited_net_capital_gains
+    - non_sch_d_capital_gains
+    # Capital gain distributions received without filing Schedule D (Form 1040 line 7).
 metadata:
   unit: currency-USD
   label: net investment income sources
diff --git a/policyengine_us/tests/policy/baseline/gov/irs/integration/non_sch_d_capital_gains.yaml b/policyengine_us/tests/policy/baseline/gov/irs/integration/non_sch_d_capital_gains.yaml
new file mode 100644
index 00000000000..3543caf8149
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/irs/integration/non_sch_d_capital_gains.yaml
@@ -0,0 +1,69 @@
+- name: Case 1, wages plus capital gain distributions without Schedule D.
+  absolute_error_margin: 0.01
+  period: 2026
+  input:
+    people:
+      person1:
+        is_tax_unit_head: true
+        age: 40
+        employment_income: 60_000
+        non_sch_d_capital_gains: 5_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: TX  # no state income tax
+  output:
+    # Distributions enter AGI: 60,000 + 5,000.
+    adjusted_gross_income: 65_000
+    # And the QDCGT worksheet taxes them at preferential rates.
+    dwks10: 5_000
+    # They are net investment income (below the NIIT MAGI threshold here).
+    net_investment_income: 5_000
+    net_investment_income_tax: 0
+
+- name: Case 2, capital gain distributions below the standard deduction owe no tax.
+  absolute_error_margin: 0.01
+  period: 2026
+  input:
+    people:
+      person1:
+        is_tax_unit_head: true
+        age: 70
+        non_sch_d_capital_gains: 5_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: TX  # no state income tax
+  output:
+    adjusted_gross_income: 5_000
+    income_tax: 0
+
+- name: Case 3, capital gain distributions are subject to NIIT above the MAGI threshold.
+  absolute_error_margin: 0.01
+  period: 2026
+  input:
+    people:
+      person1:
+        is_tax_unit_head: true
+        age: 45
+        employment_income: 300_000
+        non_sch_d_capital_gains: 10_000
+    tax_units:
+      tax_unit:
+        members: [person1]
+    households:
+      household:
+        members: [person1]
+        state_code: TX  # no state income tax
+  output:
+    adjusted_gross_income: 310_000
+    dwks10: 10_000
+    net_investment_income: 10_000
+    # 3.8% x min(NII 10,000, MAGI 310,000 - 200,000 threshold) = 380.
+    net_investment_income_tax: 380
diff --git a/policyengine_us/tests/policy/baseline/gov/irs/irs_gross_income.yaml b/policyengine_us/tests/policy/baseline/gov/irs/irs_gross_income.yaml
index 3e8c504fc02..66ab14a9b70 100644
--- a/policyengine_us/tests/policy/baseline/gov/irs/irs_gross_income.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/irs/irs_gross_income.yaml
@@ -65,3 +65,10 @@
   output:  # expected results from online TAXSIM35 10/24/22 version
     taxsim_tfica: 0.00
     income_tax: -1400.00
+
+- name: IRS gross income includes capital gain distributions not reported on Schedule D.
+  period: 2026
+  input:
+    non_sch_d_capital_gains: 5_000
+  output:
+    irs_gross_income: 5_000