Problem 1:
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.
Problem 2: 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