Question

In: Accounting

Bruce, who is single, had the following items for the current year: Salary of $85,000. Loss...

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

Salary of $85,000.

Loss of $75,000 on the sale of § 1244 stock acquired three years earlier.

​Determine Bruce’s AGI for the current year.

$27,000

$10,000

$85,000

$32,000

Solutions

Expert Solution

Per IRS, loss on sale of Section 1244 stock is treated as a Capital Loss . Section 1244 of the Internal revenue code allows to deduct loss of stock as ordinary loss as against the capital loss, which is limited to $3,000 annually. Since Bruce does not have any capital gains during the year, the excess of $3,000 of capital loss is carried forward to the subsequent years.

Further, Bruce can deduct an additional $50,000 of the losses on sale of stock as ordinary loss during the year in accordance with the provisions of Section 1244.

The total deduction of losses to arrive at the AGI for Bruce is $50,000 + $3,000 = $53,000.

Bruce's AGI for the current year = $85,000 - $53,000 = $32,000

Based on the calculation above, the correct answer is Option D - $32,000.

Option A is incorrect per the above calculation.

Option B is incorrect as Bruce cannot deduct the entire loss of $75,000 from this salary income.

Option C is incorrect as $85,000 is the salary income earned by Bruce. However, this income has to be adjusted by the loss of sale on section 1244 stock for the current year.

Please let me know if you have any questions via comments and all the best :) !

ekkarill92 answered 2 years ago
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