A taxpayer has a short-term capital loss of $10,000 and a long-term capital gain of $4,000 in Year 1. The taxpayer also has $60,000 of ordinary income. What is the taxpayer's AGI for Year 1?

Answer options:

$54,000

$60,000

$57,000

$50,000

How to approach this question

1. Net ST and LT items ($10k loss + $4k gain = $6k net loss). 2. Limit deduction against ordinary income to $3,000. 3. Subtract from Ordinary Income.

Full Answer

C.$57,000✓ Correct

IRC §1211. Net capital loss is $6,000. Only $3,000 is deductible in the current year. The remaining $3,000 is carried forward. AGI = $60,000 - $3,000 = $57,000.

Common mistakes

Deducting the full net loss; failing to net ST and LT first.

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