Question

For the current year, David has wages of $80,000 and the following property transactions:

Stock investment sales—
Long-term capital gain
$ 9,000

Short-term capital loss
(12,000)

Loss on sale of camper (purchased four years ago and used for family vacations)
(2,000)

​

What is David's AGI for the current year?


a) $76,000.

b) $77,000.

c) $78,000.

d) $89,000.

e) None of these.

Answer 1

David's adjusted gross income (AGI) for the current year is $77,000. This includes his wages minus the allowable deduction of $3,000 representing part of his short-term capital loss, excluding the non-deductible personal loss on the sale of a camper.

Step-by-step explanation:

To calculate David's adjusted gross income (AGI), we start with his wages of $80,000. We then consider his investment sales. The long-term capital gain of $9,000 can be included in his AGI, but the short-term capital loss of $12,000 must first be applied against any capital gains.

Since the long-term gains are less than the short-term losses, $3,000 of short-term losses can be deducted from ordinary income each tax year until exhausted. As a result, the $9,000 long-term gain is offset by $9,000 of the short-term loss, and another $3,000 of the short-term loss can be deducted from his wages, leaving a total of $80,000 - $3,000 = $77,000. The sale of personal use property, such as a camper, does not lead to an allowable loss for tax purposes, so the $2,000 loss on the camper sale is not considered in the AGI calculation.