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

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Question 41

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Nonbusiness income for net operating loss purposes includes alimony received.

A) True
B) False

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Question 42

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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.

A) $3,750.
B) $14,650.
C) $14,750.
D) $18,750.
E) None of the above.

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

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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 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?

Peggy is in the business of factoring accounts receivable.Last year,she purchased a $30,000 account receivable for $25,000.This year,the account was settled for $25,000.How much loss can Peggy deduct and in which year?

On July 20,2010,Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000.On November 10,2011,Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000.On September 15,2012,Matt sold the 4,000 shares of stock for $120,000.How should Matt treat the sale of the stock on his 2012 return?

Gary,who is an employee of Red Corporation,has the following items for 2012: Determine Gary's AGI and total amount of itemized deductions for 2012.

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.

If personal casualty losses (after deducting the $100 floor)exceed personal casualty gains in 2012,the itemized deduction is always equal to the losses,to the extent they exceed 10% of adjusted gross income.

Khalid,who is single,had the following items for 2012: What is Khalid's NOL for 2012?

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:

A farming NOL may be carried back 2 years.

A father cannot claim a casualty on his daughter's personal use property.

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.

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?

Janice,single with one dependent child,had the following items for the year 2012: Determine Janice's net operating loss for the year 2012.

An NOL carryforward is not used in determining the current year's NOL.

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

Cream,Inc.'s taxable income for 2012 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 2012?

Taxpayers must sell or exchange their § 1244 stock in order to recognize an ordinary loss (does not apply to stock becoming worthless).

Susan has the following items for 2012: · Loss on rental property caused by termites-$150,000.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 $45,000 at the time of the theft.The painting was insured for the fair market value. · Salary-$40,000.