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

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Question 61

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Alma is in the business of dairy farming.During the year,one of her barns was completely destroyed by fire.The adjusted basis of the barn was $90,000.The fair market value of the barn before the fire was $75,000.The barn was insured for 95% of its fair market value,and Alma recovered this amount under the insurance policy.Alma has adjusted gross income for the year of $40,000 (before considering the casualty) .Determine the amount of loss she can deduct on her tax return for the current year.

A) $3,750.
B) $14,650.
C) $14,750.
D) $18,750.
E) None of the above.

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

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Question 62

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If personal casualty losses (after deducting the $100 floor)exceed personal casualty gains in 2012,the itemized deduction is always equal to the losses,to the extent they exceed 10% of adjusted gross income.

A) True
B) False

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Question 63

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Depreciation on a building used for research may be a research and experimental expense.

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

If an election is made to defer deduction of research expenditures,the amortization period is based on the expected life of the research project if less than 60 months.

Discuss the treatment,including the carryback and carryforward periods,of casualty losses incurred with personal use property.

Jed is an electrician.Jed and his wife are accrual basis taxpayers and file a joint return.Jed wired a new house for Alison and billed her $15,000.Alison paid Jed $10,000 and refused to pay the remainder of the bill,claiming the fee to be exorbitant.Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement.Jed was never able to collect the judgement nor the remainder of the bill from Alison.What amount of loss may Jed deduct in 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.

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?

Why was the domestic production activities deduction (DPAD)enacted by Congress?

A bona fide debt cannot arise on a loan between father and son.

Last year,taxpayer had a $10,000 nonbusiness bad debt.Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000.If taxpayer collects the entire $10,000 during the current year,$8,000 needs to be included in gross income.

For tax years beginning in 2012,the domestic production activities deduction (DPAD)for a sole proprietor is calculated by multiplying 9% times adjusted gross income.

How is qualified production activities income (QPAI)calculated?

A father cannot claim a casualty on his daughter's personal use property.