A taxpayer has a $3,000 short-term capital loss and a $2,000 long-term capital gain in the current year. The taxpayer also has $50,000 of ordinary income. What is the taxpayer's Adjusted Gross Income (AGI)?

Answer options:

$50,000

$47,000

$49,000

$48,000

How to approach this question

1. Net ST and LT ($3k loss + $2k gain = $1k Net ST Loss). 2. Deduct up to $3,000 against ordinary income. 3. Calculate AGI.

Full Answer

C.$49,000✓ Correct

Net capital loss = ($3,000) ST + $2,000 LT = ($1,000) Net STCL. Up to $3,000 of net capital loss is deductible against ordinary income. $50,000 - $1,000 = $49,000.

Common mistakes

Deducting the loss before netting with the gain.

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