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

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Question 41

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In 2011,Theo,an employee,had a salary of $30,000 and experienced the following losses: Determine the amount of Theo's itemized deduction from these losses.

A) $0.
B) $2,800.
C) $2,900.
D) $4,580.
E) None of the above.

F) C) and D)
G) D) and E)

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Question 42

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In determining whether a debt is a business or nonbusiness bad debt,the debtor's use of the borrowed funds is not important.

A) True
B) False

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Question 43

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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 it's adjusted basis,a gain is recognized.

In 2011,Mary had the following items: Assuming that Mary files as head of household (has one dependent child) ,determine her taxable income for the current year.

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 $12,000 in final settlement of the account.James can take a $3,000 bad debt deduction in the current year.

How is qualified production activities income (QPAI)calculated?

Bruce,who is single,had the following items for the current year: Determine Bruce's AGI for the current year.

Alicia was involved in an automobile accident in 2011.Her car was used 50% for business and 50% 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.

If personal casualty losses (after deducting the $100 floor)exceed personal casualty gains in 2011,the itemized deduction is always equal to the losses,to the extent they exceed 10% of adjusted gross income.

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

If rental property is completely destroyed,the amount of the loss is the adjusted basis of the property at the time of the destruction reduced by $100 and 10% of AGI.

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

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

Green,Inc.,manufactures and sells widgets.During 2011,an examination of the company records showed the following items:

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

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

If an election is made to defer deduction of research expenditures,the amortization period is based on the expected life of the research project if less than 60 months.

The cost of repairs to damaged property may be acceptable as a measure of the loss in value of the property.

Taxpayer's home was destroyed by a storm in the current year and the area was declared a 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 prior year.

A bona fide debt cannot arise on a loan between father and son.