Question

Nell, single and age 38, had the following income and expense items in 2018:

Nonbusiness bad debt $6,000

Business bad debt 2,000

Nonbusiness long-term capital gain 4,000

Nonbusiness short-term capital loss 3,000

Salary 50,000

Interest income 3,000

Personal casualty gain on an asset held for four months 10,000

Personal casualty loss on an asset held for two years 1,000

Assume all casualty losses are after the application of the $100-per-event floor.

Determine Nell's AGI for 2018. (Hint: What happens with each element of personal casualty gains and losses when gains exceed losses?)

Answer 1

Solution:-

Particulars	Amount
Salary	$50,000
Interest income	3,000
Business bad debt	(2,000)
Nonbusiness bad debt	(6,000)
Short-term capital loss	(3,000)
Total short-term capital loss	(9,000)
Short-term capital gain*	10,000
Net short-term capital gain	1,000
Long-term capital gain	4,000
Long-term capital loss*	(1,000)
Net long-term capital gain	3,000
Adjusted gross income	$55,000

*Personal casualty gains exceed personal casualty losses ($10,000 − $1,000 = $9,000); therefore, all personal casualty items are treated as capital gains and losses.