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

A) True
B) False

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Question 32

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On June 2,2015,Fred's TV Sales sold Mark a large HD TV,on account,for $12,000.Fred's TV Sales uses the accrual method.In 2016,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 2017,final settlement was made and Fred received $1,000.How much bad debt loss can Fred deduct in 2017?

A) $0
B) $7,000
C) $8,000
D) $12,000
E) None of the above

F) A) and D)
G) B) and C)

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Question 33

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How is qualified production activities income (QPAI)calculated?

When a net operating loss is carried back to a non-loss year,the net operating loss can affect the medical expense deduction of the carryback year.

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

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?

Last year,Green Corporation incurred the following expenditures in the development of a new plant process: Salaries $250,000 Materials 90,000 Utilities 20,000 Quality control testing costs 40,000 Management study costs 5,000 Depreciation of equipment 18,000 ​ During the current year,benefits from the project began being realized in May.If Green Corporation elects a 60 month deferral and amortization period,determine the amount of the deduction for the current year.

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.

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.

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.

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.

Gary,who is an employee of Red Corporation,has the following items for 2016: Salary $80,000 Personal casualty gain 7,000 Personal casualty loss from one event (before the $100 floor) 15,000 Loss on rental property 6,000 Theft of bonds 18,000 Unreimbursed loss from theft of a computer used 100% for business 4,000 Determine Gary's AGI and total amount of itemized deductions for 2016.

A farming NOL may be carried back 2 years.

A loss is not allowed for a security that declines in value.

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:

Jason,married and filing jointly,had the following income for 2016: Salary $ 70,000 Loss on the sale of § 1244 stock held for 5 years (110,000) Dividends 25,000 Interest income 10,000 Itemized deductions (no casualty losses) (12,000) ​ Jason has four dependent children.Calculate the net operating loss for 2016.

Which of the following events would produce a deductible loss?

A theft of investment property can create or increase a net operating loss for an individual.

Bruce,who is single,had the following items for the current year: ∙ Salary of $80,000. ∙ Gain of $20,000 on the sale of § 1244 stock acquired two years earlier. ∙ Loss of $75,000 on the sale of § 1244 stock acquired three years earlier. ∙ ​ Worthless stock of $15,000.The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year. Determine Bruce's AGI for the current year.

"Other casualty" means casualties similar to those associated with fires,storms,or shipwrecks.