Question

Peter files a return as a single taxpayer. In 2020, he had the following items:

•Salary of $40,000.
•Loss of $65,000 on the sale of § 1244 stock acquired two years ago.
•Interest income of $8,000.
Peter's AGI for 2020 is:___

Answer 1

Peter's adjusted gross income (AGI) for 2020 is calculated by adding his salary and interest income, and then subtracting the allowable loss from the sale of § 1244 stock, with a cap of $50,000 for a single taxpayer. After deduction, the loss brings his AGI down to $0.

Step-by-step explanation:

The calculation of Peter's adjusted gross income (AGI) involves summing up all his incomes and subtracting allowable losses. As a single taxpayer, Peter has a salary of $40,000, a loss of $65,000 on the sale of § 1244 stock, and interest income of $8,000.

When calculating AGI, the IRS allows certain losses on the sale of § 1244 stock to be treated as an ordinary loss rather than a capital loss, with specific limits. In the case of a single taxpayer, the loss limit is $50,000. Therefore, Peter can deduct $50,000 of his $65,000 stock loss against his income.

Now to calculate Peter's AGI:

1. Start with the salary: $40,000.
2. Add interest income: $40,000 + $8,000 = $48,000.
3. Subtract the allowable stock loss: $48,000 - $50,000 = -$2,000.

However, an AGI cannot be negative, so the lowest it can be is $0. Thus, Peter's AGI for 2020 is $0.