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

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Question 1

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Norm's car,which he uses 100% for personal purposes,was completely destroyed in an accident in 2012.The car's adjusted basis at the time of the accident was $13,000.Its fair market value was $10,000.The car was covered by a $2,000 deductible insurance policy.Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates.His adjusted gross income was $14,000 (before considering the loss) .What is Norm's deductible loss?

A) $0.
B) $100.
C) $500.
D) $9,500.
E) None of the above.

F) A) and E)
G) None of the above

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Question 2

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Roger,an individual,owns a proprietorship called Green Thing.For the year 2012,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.

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Determine Roger's ad...

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Question 3

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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.

Identify the factors that should be considered in determining whether a transaction is a bona fide loan or a gift.

A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.

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

James is in the business of debt collection.He purchased a $20,000 account receivable from Green Corporation for $15,000.During the year,James collected $17,000 in final settlement of the account.James can take a $2,000 bad debt deduction in the current year.

Nonbusiness income for net operating loss purposes includes alimony received.

The amount of a loss on insured business use property is reduced by the insurance coverage if no claim is made against the insurer.

Wu,who is single,has the following items for 2012: What is Wu's NOL for 2012?

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?

Bill,age 40,is married with two dependents.Bill had the following items for the year 2012: Based on the above information,what is the net operating loss for Bill and his spouse for the year 2012?

In 2012,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:

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

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

A business bad debt can offset an unlimited amount of ordinary income.

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

Ivory,Inc.,has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in 2012.Ivory's domestic production activities deduction is:

John files a return as a single taxpayer.In 2012,he had the following items: Determine John's AGI for 2012.

Two years ago,Gina loaned Tom $50,000.Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance.Last year,when the balance owing on the loan was $18,000,Tom defaulted on the note.As of the end of last year,there appeared to be no reasonable prospect of Gina recovering the $18,000.As a consequence,Gina claimed the $18,000 as a nonbusiness bad debt.Last year,Gina had AGI of a negative $6,000 which included $5,000 net long-term capital gains and $4,000 of qualified dividends.Gina did not itemize her deductions.During the current year,Tom paid Gina $13,000 in final settlement of the loan.How should Gina account for the payment in the current year?