Question

Problem 7-32 (LO. 2, 8) Abby, a single taxpayer, purchased 10,000 shares of $ 1244 stock several years ago at a cost of $20 per share. In November of the current year, Abby received an offer to sell the stock for $12 per share. She has the option of either selling all of the stock now or selling half of the stock now and half of the stock in January of next year. Abby will receive a salary of $80,000 for the current year and $90,000 next year. Abby will have long-term capital gains of $8,000 for the current year and $10,000 next year. If Abby's goal is to minimize her AGI for the two years, determine whether she should sell all of her stock this year or half of her stock this year and half next year. a. Determine Abby's total AGI under both options for the current year and next year. If an amount is zero, enter "O". Sell all of the stock this year: Current year's AGI Salary $80,000 50,000 Ordinary loss Long-term capital gain Less: short-term capital loss $8,000 30,000 Equals: Adjusted gross income Next year's AGI Salary Long-term capital gain $90,000 $10,000 Less: Equals: $ Adjusted gross income Total AGI III II Current year Next year Total

Answer 1

Sell all of the stock this year
Current Year's AGI
Salary		$       80,000
Ordinary Loss (Section 1244 Limits)		($ 50,000)
Long-term Capital gain	$         8,000
Less: Long Term Capital Loss ($ 80,000 - $ 50,000)	($ 30,000)
Equals	($ 27,000)
Long term Capital Loss Limited		($ 3,000)
Adjusted Gross Income		$       27,000
Next Year's AGI
Salary		$       90,000
Long-term Capital gain	$       10,000
Less: Long Term Capital Loss Carryover ($ 30,000 - $ 11,000)	($ 19,000)
Equals	($ 9,000)
Long term Capital Loss Limited		($ 3,000)
Adjusted Gross Income		$       87,000
Total AGI
Current Year		$       27,000
Next Year		$       87,000
Total		$    114,000

Sell Half of the stock this year and half next year
Current Year's AGI
Salary		$       80,000
Ordinary Loss		($ 40,000)
Long-term Capital gain	$         8,000
Less: Long Term Capital Loss	$                -
Equals		$          8,000
Adjusted Gross Income		$       48,000
Next Year's AGI
Salary		$       90,000
Ordinary Loss		($ 40,000)
Long-term Capital gain	$       10,000
Less: Long Term Capital Loss	$                -
Equals		$       10,000
Adjusted Gross Income		$       60,000
Total AGI
Current Year		$       48,000
Next Year		$       60,000
Total		$    108,000

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