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    Treatment of items in Pierce's AGI; Calculate state taxable

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    Pierce has a $16,000 Section 1231 loss, a $12,000 Section 1231 gain, and a salary of $50,000. What is the treatment of these items in Pierce's AGI?

    A) Pierce has a LTCG of $12,000 and a net ordinary income of $34,000.
    B) The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000.
    C) Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000. He also has a $1,000 LTCL carryover.
    D) Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

    Husband and wife, who live in a common law state, are eligible to file a joint return for 2010, but elect to file separately. They do not have dependents. Wife has adjusted gross income of $25,000 and has $2,200 of expenditures which qualify as itemized deductions. She is entitled to one exemption. Husband deducts itemized deductions of $11,200. What is the taxable income for the wife?

    A) $19,300
    B) $19,150
    C) $21,350
    D) $22,800

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    Solution Preview

    For the calculation of AGI for Pierce:
    Salary $50,000
    Section 1231 ordinary loss ($16,000)
    Section 1231 capital gain $12,000
    AGI $46,000

    By definition, Section 1231 gain relates to business property that has been held for over one year, and is treated as a capital gain.

    A Section 1231 loss is a business loss that is fully deductible as an ...

    Solution Summary

    The solution shows the calculations for the answers, but also provides references and information in explanation of the answers.