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

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Question 41

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

A) True
B) False

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Question 42

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Which of the following events would produce a deductible loss in 2018?

A) Erosion of personal use land due to rain or wind.
B) Termite infestation of a personal residence over a several year period.
C) Damages to personal automobile resulting from a taxpayer's willful negligence.
D) A misplaced diamond ring.
E) None of the above.

F) A) and D)
G) A) and E)

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Question 43

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An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss.

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

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.

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 the current year, Juan's home was burglarized. Juan had the following items stolen: ∙ Securities worth $25,000. Juan purchased the securities four years ago for $20,000. ∙ New tools which Juan had purchased two weeks earlier for $8,000. Juan uses the tools in making repairs at an apartment house that he owns and manages. ∙ An antique worth $15,000. Juan inherited the antique a family keepsake) when the property was worth $11,000. 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.

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.

John files a return as a single taxpayer. In 2018, he had the following items: ∙ Salary of $40,000. ∙ Loss of $65,000 on the sale of § 1244 stock acquired two years ago. ∙ Interest income of $6,000. Determine John's AGI for 2018.

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:

If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.

A net operating loss occurring in 2018 can only be carried forward no carryback exists).

In 2017, 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 2018, 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 2018.

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

Taxpayer's home was destroyed by a storm in the current year in a Federally-declared disaster area. If the taxpayer elects to treat the loss as having occurred in the prior year, it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.

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