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

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Question 1

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Gary,who is an employee of Red Corporation,has the following items for 2017: ​ Determine Gary's AGI and total amount of itemized deductions for 2017.

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

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A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.

Julie,who is single,has the following items for 2017: ​

A business bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.

If a business debt previously deducted as partially worthless becomes totally worthless this year,only the amount not previously deducted can be deducted this year.

Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.

Mike,single,age 31,had the following items for 2017: ​ Compute Mike's taxable income for 2017.

If investment property is stolen,the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

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.

In 2017,Morley,a single taxpayer,had an AGI of $30,000 before considering the following items: ​ Determine the amount of Morley's itemized deduction from the losses.

On September 3,2016,Able,a single individual,purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31,2016,the stock was worth $85,000.On August 15,2017,Able was notified that the stock was worthless.How should Able report this item on his 2017 tax return?

The current position of the IRS is that a personal casualty loss deduction is not allowed for losses resulting from termites.

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

On June 2,2016,Fred's TV Sales sold Mark a large HD TV,on account,for $12,000.Fred's TV Sales uses the accrual method.In 2017,when the balance on the account was $8,000,Mark filed for bankruptcy.Fred was notified that he could not expect to receive any of the amount owed to him.In 2018,final settlement was made and Fred received $1,000.How much bad debt loss can Fred deduct in 2018?

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.

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

On February 20,2016,Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1,2017,the stock became worthless.During 2017,Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago,a $9,000 loss on a nonbusiness bad debt,and a $5,000 long-term capital gain.How should Bill treat these items on his 2017 tax return?

What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each?

On July 20,2016,Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000.On November 10,2016,Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000.On September 15,2017,Matt sold the 4,000 shares of stock for $120,000.How should Matt treat the sale of the stock on his 2017 return?