In 2004, Mr. EF, a single taxpayer, contributed $45,000 in exchange for 500 shares of DB stock. In 2007, he paid $40,000 to another shareholder to purchase 1,000 more DB shares. All DB’s stock qualified as Section 1244 stock when it was issued. This year, Mr. EF sold all 1,500 DB shares for $16 per share. His only income item was his $80,000 salary.
a. Compute Mr. EF’s AGI.
b. How would AGI change if he recognized a $20,000 capital gain on the sale of other securities?