Final answer:
Valeria and Trey's taxable income would be a negative number if we simply subtract their standard deduction from their AGI because the deduction exceeds their income. However, a Net Operating Loss generally applies to businesses, not individuals. For personal taxes, if deductions exceed income, this may result in zero tax liability but not carryover NOL.
Step-by-step explanation:
To calculate whether Valeria and Trey have a Net Operating Loss (NOL) for the tax year 2022, we first determine their Adjusted Gross Income (AGI). They have $17,500 of non-business capital gains, less $7,000 of non-business capital losses, resulting in a net capital gain of $10,500. When adding the $1,750 of interest income, their AGI becomes $12,250. As they have no itemized deductions, we subtract the standard deduction for a married couple filing jointly, which in 2022 is $25,900.
Therefore:
- AGI = Capital Gains - Capital Losses + Interest Income = $10,500 + $1,750 = $12,250
- Taxable Income = AGI - Standard Deduction = $12,250 - $25,900
Given that the standard deduction is greater than their AGI, this could result in a negative taxable income. However, note that the concept of NOL typically applies to businesses rather than to personal income. In personal income tax, if deductions exceed income, it may lead to a situation where no tax is owed, but it does not generally create an NOL that can be applied in future years as it does with businesses. Any unused personal capital losses can be carried forward to offset future capital gains, but this is separate from a traditional NOL.