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

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Question 41

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Jason,married and filing jointly,had the following income for 2014: Jason has four dependent children.Calculate the net operating loss for 2014.

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Salary $ 70,000
Ordinary loss (§ 1244 st...

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Question 42

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Susan has the following items for 2014: -Loss on rental property caused by termites-$110,000.Insurance covered 80% of the loss. -Loss on personal use automobile-$10,000.The insurance policy does not cover the first $3,000 of loss.Susan decided not to file a claim for the loss. -Loss on a painting stolen from Susan's house.Susan purchased the painting three years ago as an investment.She paid $40,000 for the painting and it was worth $35,000 at the time of the theft.The painting was insured for the fair market value. -Salary-$40,000. Determine Susan's AGI and total amount of itemized deductions for 2014.

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Question 43

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Norm's car,which he uses 100% for personal purposes,was completely destroyed in an accident in 2014.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?

When a nonbusiness casualty loss is spread between two taxable years,the loss in the second year is reduced by 10% of adjusted gross income for the first year.

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:

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.

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

Cream,Inc.'s taxable income for 2014 before any deduction for an NOL carryforward of $30,000 is $70,000.Cream's qualified production activities income (QPAI) is $60,000.What is the amount of Cream's domestic production activities deduction (DPAD) for 2014?

Milt,married and filing jointly,had the following items for 2014: Milt has two dependent children.If Milt and his wife file a joint return,compute their net operating loss for 2014.

Discuss the tax treatment of non-reimbursed losses of an employee in connection with a trade or business.

A farming NOL may be carried back 2 years.

The cost of depreciable property is not a research and experimental expenditure.

In 2014,Mary had the following items: Assuming that Mary files as head of household (has one dependent child) ,determine her taxable income for 2014.

If a business debt previously deducted as partially worthless becomes totally worthless this year,only the amount not previously deducted can be deducted this year.

For tax years beginning in 2014,the domestic production activities deduction (DPAD)for a sole proprietor is calculated by multiplying 9% times adjusted gross income.

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

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?

On February 20,2013,Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1,2014,the stock became worthless.During 2014,Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago,a $9,000 loss on a nonbusiness bad debt,and a $5,000 long-term capital gain.How should Bill treat these items on his 2014 tax return?

In the computation of a net operating loss,which of the following items is not added to the negative taxable income?

If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than its adjusted basis,a gain is recognized.