Mary, a single taxpayer, purchased 10,000 shares of § 1244 stock several years a

Question

Mary, 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, Mary 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. Mary will receive a salary of $80,000 for the current year and $90,000 next year. Mary will have long-term capital gains of $8,000 for the current year and $10,000 next year.

If Mary'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. The loss on the sale of Mary's § 1244 stock is treated as loss. This treatment for taxpayers filing as single is limited to $ per year.

b. Determine Mary's total AGI under both options for the current year and next year.

If an amount is zero, enter "0".

Which option will result in the best overall tax consequence for Mary?

Sell all of the stock this year: Current year's AGI Salary $80,000 $ Long-term capital gain $8,000 Less: $ Equals: $ $ Adjusted gross income $ $ Next year's AGI Salary $90,000 Long-term capital gain $10,000 Less: $ Equals: $ $ Adjusted gross income $ Total AGI Current year $ Next year Total $ Sell half of the stock this year and half next year: Current year's AGI Salary $80,000 $ Long-term capital gain $8,000 Less: $ Equals: $ $ Adjusted gross income $ Next year's AGI Salary $90,000 $ Long-term capital gain $10,000 Less: $ $ Adjusted gross income $ Total AGI Current year $ Next year Total $

Explanation / Answer

If Marry Goal is to Minimize her AGI for 2 years, She Should Sell Half of the stock this year and next year because it will Lower her AGI by $ 6,000 ( $ 1,14,000 - $ 1,08,000) . Sell all of the stock this year Current Year's AGI Salary $       80,000 Ordinary Loss ( Sectin 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 $    1,14,000 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 $    1,08,000

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