How to Calculate Adjusted Gross Income & Capital Gains

by Emily Weller

Capital gains are profits you earn when you sell a capital asset such as a stock or real estate. Your adjusted gross income (AGI) is the amount of money you earned in a year, minus any deductions, such as student loan interest or half of your self-employment tax. Your standard or itemized deductions are not included in your AGI. If you have capital gains during the year, you will need to know the amount to determine your AGI.

1. Record the cost of the asset or stock, known as the cost basis, on a piece of paper. Record the price you sold the asset for on line 1 or 8, section on the paper as well . Repeat with any stocks or assets you sold during the year.

2. Subtract the cost basis from the sale price to determine the gain for each stock. For example, if you bought three shares of a company for $400 and sold those three shares for $1,200, you have a gain of $800. Add the gains of all your assets together.

3. Record the amount of your gains on line 13 of form 1040.

4. Write the amount of your wages or salary, reported on your W-2, on line 7 of the 1040 form. If you have more than one W-2, add the amounts of your salary and wages before writing it on line 7.

5. Record any other income you earned during the year on the relevant lines of the 1040 form. For example, add together and write any interest income you earned on line 8a. If you have a business, use Schedule C to determine your net business income, and record that amount on line 21. Other sources of income include IRA distributions, alimony and money from a pension plan.

6. Add the total amount of your income, including the capital gains you reported on line 13, and record the amount on line 22 of the 1040.

7. Record the amount of any deductions you can claim on lines 23 through 35 of the 1040. You can deduct contributions to your traditional IRA, to SIMPLE or SEP IRA, the amount of interest you paid on your student loans, and tuition and fees. If you are self-employed, you may deduct your insurance premiums and half of the self-employment tax.

8. Add the amounts on lines 22 through 35 and record on line 36.

9. Subtract the amount from line 36 from the amount on line 22 and write the amount, which is your adjusted gross income, on line 37. If it is a negative number, write "0" on line 37

Items you will need

  • Calculator
  • IRS Form 1040
  • W-2, 1099's and other forms reporting income
  • Schedule SE (optional)
  • Forms reporting student loan interest

About the Author

Based in Pennsylvania, Emily Weller has been writing professionally since 2007, when she began writing theater reviews Off-Off Broadway productions. Since then, she has written for TheNest, ModernMom and Rhode Island Home and Design magazine, among others. Weller attended CUNY/Brooklyn college and Temple University.

Photo Credits

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