Dan sold a gold pocket watch for $12,000 that he had inherited from his Uncle John several years ago. John had originally purchased it for $2,000 and it had a $5,000 FMV at the time of his death. If Dan's AGI is $900,000, how will it be reported on his tax return?

a. $7,000 Capital Gain at 23.8% (Incorrect)

b. $7,000 Capital Gain at 31.8%

c. $10,000 Capital Gain at 20% (Incorrect)

d. $10,000 Capital Gain at 23.8%

Please explain, thank you.