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

When all the requirements of 1244 stock are achieve, ordinary loss treatment for losses on a sale of 1244 stock is permitted if the loss otherwise would be treated as capital loss.

If all shares are sold this year, marys AGI will be $80,000 + $8,000 (long-term capital gains) - $80,000 (1244 loss) = $8000 in this case she will have zero tax liability, and next year -$17,850

If Mary sells half of the stock now and half of the stock on january her AGI will be this year $80,000 + $8000 - $40,000 (section 1244 loss)= $48,000

next year $90,000 (salary) + $1000 (long.term capital gains) - $40,000 = $60000

Her tax liability will be:

This year - 5,850

next year - 8,850

total -$14,700