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

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Question 21

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An individual taxpayer who does not itemize deductions uses the standard deduction to compute the excess of nonbusiness deductions over the sum of nonbusiness income and net nonbusiness capital gains for purposes of computing net operating loss.

A) True
B) False

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Question 22

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How is qualified production activities income (QPAI)calculated?

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QPAI is calculated as follows:
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Question 23

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On September 3,2013,Able,a single individual,purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31,2013,the stock was worth $85,000.On August 15,2014,Able was notified that the stock was worthless.How should Able report this item on his 2014 tax return?

Research and experimental expenditures do not include the cost of consumer surveys.

The current position of the IRS is that a personal casualty loss deduction is not allowed for losses resulting from termites.

Discuss the treatment of alimony paid and deductible individual retirement account contributions in computing an individual's net operating loss.

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: $\begin{array}{lr}\text { Cost basis } & \$ 260,000 \\\text { Value before the fire } & 400,000 \\\text { Value after the fire } & 100,000 \\\text { Insurance recovery } & 270,000\end{array}$ 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: $\begin{array}{lll}\text {Cost basis }&\$80,000\\\text {Value before the accident }&56,000\\\text {Value after the accident }&20,000\\\text {Insurance recovery }&18,000\\\end{array}$ What is John's itemized casualty loss deduction?

While Susan was on vacation during the current year,someone broke into her home and stole the following items: -A computer used 60% in connection with Susan's employment as an employee and 40% for her personal use.The cost of the computer was $8,000.Depreciation of $3,000 had been taken on the computer and it had a fair market value of $4,000 at the time of the theft. -A painting,which Susan purchased as an investment for $10,000,had a fair market value of $17,000. -Silverware purchased for $3,000 had a fair market value of $5,000. ∙ Cash of $30,000. Susan's adjusted gross income,before considering any of the above items,is $60,000.Determine the total amount of Susan's itemized deductions resulting from the theft.

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

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.

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.

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

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

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 corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

Neal,single and age 37,has the following items for 2014: $\begin{array}{lr}\text { Salary } & \$ 50,000 \\\text { Casualty loss on business property } & (8,000) \\\text { Casualty loss on rental property } & (5,000) \\\text { Personal casualty gains } & 3,000 \\\text { Personal casualty losses (after } \$ 100 \text { floor) } & (12,000) \\\text { Interest expense on personal residence } & (7,000)\end{array}$ detrmine neal's taxable income for 2014.

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

Which of the following events would produce a deductible loss?

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?

Alicia was involved in an automobile accident in 2014.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.