Question

Leroy, who is single, had the following items for the current year:

Salary of $90,000.
Gain of $30,000 on the sale of § 1244 stock acquired two years earlier.
Loss of $75,000 on the sale of § 1244 stock acquired three years earlier.
Worthless stock of $7,000. The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year.
Determine Leroy's AGI for the current year.

Answer 1

Leroy's Adjusted Gross Income (AGI) for the current year is calculated by combining his salary, gain from selling §1244 stock, and the allowable losses from §1244 stock and worthless stock. After applying the loss limitations, Leroy's AGI becomes $67,000.

Step-by-step explanation:

To calculate Leroy's Adjusted Gross Income (AGI) for the current year, we need to consider his salary, gains, and losses from the sale of §1244 stock, and any deductions from worthless stock. Here's how the calculation is done:

• Salary: $90,000
• Gain from sale of §1244 stock: $30,000
• Loss from sale of §1244 stock: -$75,000 (but note, the deductible loss on §1244 stock is limited to $50,000 for single filers)
• Loss from worthless stock: -$7,000 (assumed to be a capital loss)

Now, we apply the loss limitations on the sales:

• Leroy can deduct a maximum loss of $50,000 on §1244 stock since he's single.
• The deductible capital loss from worthless stock is limited to $3,000 against ordinary income for the year.

With these limitations in mind, here's the calculation:

1. Start with salary: $90,000
2. Add gain on §1244 stock: $90,000 + $30,000 = $120,000
3. Subtract maximum deductible §1244 stock loss: $120,000 - $50,000 = $70,000
4. Subtract deductible capital loss from worthless stock: $70,000 - $3,000 = $67,000

Therefore, Leroy's AGI for the current year would be $67,000.