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Exam 7: Deductions and Losses Certain Business Expenses and Losses

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Question 61

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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.

A) True
B) False

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Question 62

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The domestic production activities deduction (DPAD)for a sole proprietor is calculated by multiplying a percentage rate (currently 9%)times adjusted gross income.

A) True
B) False

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Question 63

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Tonya had the following items for last year: Salary $40,000 Short-term capital gain 12,000 Nonbusiness bad debt (25,000) Long-term capital gain 8,000 ​ For the current year,Tonya had the following items: Salary $45,000 Collection of last year's bad debt 25,000 ​ Determine Tonya's adjusted gross income for the current year.

In determining whether a debt is a business or nonbusiness bad debt,the debtor's use of the borrowed funds is important.

Cream,Inc.'s taxable income for the current year 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 the current year?

Jose,single,had the following items for 2016: Salary $44,000 § 1244 loss on stock acquired 3 years ago (70,000) § 1244 gain on stock acquired 10 months ago 26,000 Worthless security purchased in June of last year (4,000) Nonbusiness bad debt (7,000) Interest income 8,000 Compute Jose's adjusted gross income for 2016. ​

The excess of nonbusiness capital gains over nonbusiness capital losses must be added to taxable income to compute the net operating loss of an individual.

In 2016,Wally had the following insured personal casualty losses (arising from one casualty) .Wally also had $42,000 AGI for the year before considering the casualty. Fair Market Value ​ Asset Adjusted Basis Before After Insurance Recovery A $9,200 $8,000 $1,000 $2,000 B 3,000 4,000 -0- 4,000 C 3,700 1,700 -0- 900 Wally's casualty loss deduction is:

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?

Juan,married and filing jointly,had the following income and deductions for 2016: Sales $600,000 Business expenses (650,000) Interest income 3,000 Dividends 4,000 Personal casualty loss (after deducting the $100 floor) (25,000) Taxes paid on personal residence (7,000) Interest paid on personal residence (9,000) Alimony paid (18,000) ​ Juan has three dependent children.Calculate the net operating loss for 2016.

Nonbusiness income for net operating loss purposes includes dividends received.

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?

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

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

Khalid,who is single,had the following items for 2016: Salary $40,000 Interest income on U.S.Treasury bonds 8,000 Loss on theft of securities (60,000) Interest income on New York state bonds 12,000 ​ What is Khalid's NOL for 2016?

Losses on rental property are classified as deductions for AGI.

In 2015,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 2016,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 2016.

A loss from a worthless security is always treated as a short-term capital loss.

A taxpayer who sustains a casualty loss in an area designated by the President of the United States as a disaster area may take the loss in the year in which the loss occurred or elect to take the loss in the previous year.Identify factors that should be considered in deciding in which year to take the loss.

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