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Exam 7: Deductions and Losses: Certain Business Expenses and Losses

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Question 31

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Last year, Lucy purchased a $100,000 account receivable for $90,000. During the current year, Lucy collected $97,000 on the account. What are the tax consequences to Lucy associated with the collection of the account receivable? No subsequent collections are expected.

A) $0
B) $2,000 gain
C) $3,000 loss
D) $13,000 loss
E) None of the above

F) B) and E)
G) A) and E)

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Question 32

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If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.

A) True
B) False

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Question 33

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Juan, married and filing jointly, had the following income and deductions for 2017: ​ Juan has three dependent children. Calculate the net operating loss for 2017.

Last year, Amos had AGI of $50,000. Amos also had a diamond ring stolen which cost $20,000 and was worth $17,000 at the time of the theft. He itemized deductions on last year's tax return. In the current year, Amos recovered $17,000 from the insurance company. Therefore, he must include $11,900 in gross income on the tax return for the current year.

If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than it's adjusted basis, a gain is recognized.

In the current year, Juan's home was burglarized. Juan had the following items stolen: ​ Juan's homeowner's policy had a $50,000 deductible clause for thefts. If Juan's salary for the year is $50,000, determine the amount of his itemized deductions as a result of the theft.

Stella, age 38, is single with no dependents. The following information was obtained from her personal records for the 2017 year. ​ Based on the above information, what is Stella's net operating loss for 2017?

Discuss the treatment of alimony paid and deductible individual retirement account contributions in computing an individual's net operating loss.

If a taxpayer has a net operating loss (NOL) in 2017 of $20,000, of which $8,000 is attributable to a theft of rental use property, the taxpayer may:

In 2017, Grant's personal residence was completely destroyed by fire. Grant was insured for 100% of his actual loss, and he received the insurance settlement. Grant had adjusted gross income, before considering the casualty item, of $30,000. Pertinent data with respect to the residence follows: What is Grant's allowable casualty loss deduction?

John had adjusted gross income of $60,000. During the year his personal use summer home was damaged by a fire. Pertinent data with respect to the home follows: ​ John had an accident with his personal use car. As a result of the accident, John was cited with reckless driving and willful negligence. Pertinent data with respect to the car follows: ​ What is John's itemized casualty loss deduction?

If qualified production activities income (QPAI) cannot be used in the calculation of the domestic production activities deduction because of the taxable income limitation, the product of the amount not allowed multiplied by the DPAD percentage rate (currently 9%) can be carried over for 5 years.

Discuss the computation of NOL remaining to be carried forward after the NOL has been applied in a carryback year.

Several years ago, John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000. Last year, John sold one-half of his Red Corporation stock to Mike for $12,000. During the current year, John sold the remaining Red Corporation stock for $3,000. John has a $17,000 ($3,000 - $20,000) ordinary loss for the current year.

Three years ago, Sharon loaned her sister $30,000 to buy a car. A note was issued for the loan with the provision for monthly payments of principal and interest. Last year, Sharon purchased a car from the same dealer, Hank's Auto. As partial payment for the car, the dealer accepted the note from Sharon's sister. At the time Sharon purchased the car, the note had a balance of $18,000. During the current year, Sharon's sister died. Hank's Auto was notified that no further payments on the note would be received. At the time of the notification, the note had a balance due of $15,500. What is the amount of loss, with respect to the note, that Hank's Auto may claim on the current year tax return?

The cost of depreciable property is not a research and experimental expenditure.

How is qualified production activities income (QPAI) calculated?

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

A loss from a worthless security is always treated as a short-term capital loss.

A taxpayer can carry any NOL incurred forward up to 20 years.