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

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Question 1

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Mary incurred a $20,000 nonbusiness bad debt last year.She also had an $8,000 long-term capital gain last year.Her taxable income for last year was an NOL of $15,000.During the current year,she unexpectedly collected $12,000 on the debt.How should Mary account for the collection?

A) $0 income
B) $8,000 income
C) $11,000 income
D) $12,000 income
E) None of the above

F) A) and B)
G) All of the above

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Question 2

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

A) True
B) False

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Question 3

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Al,who is single,has a gain of $40,000 on the sale of § 1244 stock (small business stock) and a loss of $80,000 on the sale of § 1244 stock.As a result,Al has a $40,000 ordinary loss.

In 2015,Theo,an employee,had a salary of $30,000 and experienced the following losses: Loss from damage to rental property ($10,000) Unreimbursed loss from theft of business computer (5,000) Personal casualty gain 4,000 Personal casualty loss (after $100 floor) (9,000) ​ Determine the amount of Theo's itemized deduction from these losses.

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.

In the current year,Amber Corporation has taxable income of $880,000,alternative minimum taxable income of $600,000,and qualified production activities income (QPAI) of $640,000.The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000.Amber's DPAD for the current year is:

A father cannot claim a loss on his daughter's rental use property.

In 2014,Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home.Sarah's insurance company told her that her policy did not cover the theft.Sarah's other itemized deductions last year were $2,000.She had AGI of $30,000 last year.In August of 2015,Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000.Determine the tax treatment of the $5,000 received by Sarah during 2015.

In 2015,Tan Corporation incurred the following expenditures in connection with the development of a new product: Salaries $ 60,000 Supplies 20,000 Depreciation on research equipment 10,000 Testing for quality control 5,000 Advertising 8,000 Overhead allocated to research 2,000 Tan began selling the product in November 2015.If Tan elects to amortize research and experimental expenditures,determine Tan's deduction for 2015.

On July 20,2014,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 10,2014,Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000.On September 15,2015,Matt sold the 4,000 shares of stock for $120,000.How should Matt treat the sale of the stock on his 2015 return?

Mike,single,age 31,had the following items for 2015: Salary $50,000 Nonbusiness bad debt (6,000) Casualties-independent events Asset A (personal use property held for two years)-gain 3,000 Securities (stolen)-loss (8,000) Dividends 2,000 Interest expense on personal residence 10,000 ​ Compute Mike's taxable income for 2015.

Alicia was involved in an automobile accident in 2015.Her car was used 60% for business and 40% for personal use.The car had originally cost $40,000.At the time of the accident,the car was worth $20,000 and Alicia had taken $8,000 of depreciation.The car was totally destroyed and Alicia had let her car insurance expire.If Alicia's AGI is $50,000 (before considering the loss) ,determine her itemized deduction for the casualty loss.

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

Regarding research and experimental expenditures,which of the following are not qualified expenditures?

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.

Roger,an individual,owns a proprietorship called Green Thing.For the year 2015,Roger has the following items: ∙ Business income-$200,000. ∙ Business expense-$150,000. ∙ Loss on a completely destroyed business machine.The machine had an adjusted basis of $25,000 and a fair market value of $20,000. ∙ Loss on a business truck.The truck had an adjusted basis of $8,000.The repairs to fix the truck cost $10,000. Determine Roger's adjusted gross income for 2015.

Peggy is in the business of factoring accounts receivable.Last year,she purchased a $30,000 account receivable for $25,000.This year,the account was settled for $25,000.How much loss can Peggy deduct and in which year?

On September 3,2014,Able,a single individual,purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31,2014,the stock was worth $85,000.On August 15,2015,Able was notified that the stock was worthless.How should Able report this item on his 2015 tax return?

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.

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