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

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Question 31

True/False

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A bond held by an investor that is uncollectible will be treated as a worthless security and hence,produce a capital loss.

A) True
B) False

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Question 32

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A theft loss is taken in the year of the theft.

A) True
B) False

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Question 33

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Ivory,Inc.,has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in the current year.Ivory's domestic production activities deduction is:

Discuss the tax treatment of non-reimbursed losses of an employee in connection with a trade or business.

Susan has the following items for 2017: ∙ Loss on rental property caused by termites-$110,000.Insurance covered 80% of the loss. ∙ Loss on personal use automobile-$10,000.The insurance policy does not cover the first $3,000 of loss.Susan decided not to file a claim for the loss. ∙ Loss on a painting stolen from Susan's house.Susan purchased the painting three years ago as an investment.She paid $40,000 for the painting and it was worth $35,000 at the time of the theft.The painting was insured for the fair market value. ∙ Salary-$40,000. Determine Susan's AGI and total amount of itemized deductions for 2017.

Five years ago,Tom loaned his son John $20,000 to start a business.A note was executed with an interest rate of 8%,which is the Federal rate.The note required monthly payments of the interest with the $20,000 due at the end of ten years.John always made the interest payments until last year.During the current year,John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800.Tom is an accrual basis taxpayer whose only income is salary and interest income.The proper treatment for the nonpayment of the note is:

How is qualified production activities income (QPAI) calculated?

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?

A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

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

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.

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

John files a return as a single taxpayer.In 2017,he had the following items: Determine John's AGI for 2017.

Sally is an employee of Blue Corporation.Last year,she purchased a very expensive computer with her own funds.She used the computer 100% for business purposes.During the current year,the computer was completely destroyed in a fire.Blue Corporation did not reimburse her for her loss.Discuss whether Sally's loss will create or increase Sally's net operating loss.

In 2017,Wally had the following insured personal casualty losses (arising from one casualty) .Wally also had $42,000 AGI for the year before considering the casualty. Wally's casualty loss deduction is:

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

The amount of a business loss cannot exceed the amount of the taxpayer's NOL for the taxable year.

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 able to collect the judgement but not the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?

In determining whether a debt is a business or nonbusiness bad debt,the debtor's use of the borrowed funds is important.

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?