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

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Question 31

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

A) True
B) False

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Question 32

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On February 20,2011,Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1,2012,the stock became worthless.During 2012,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 2012 tax return?

A) $4,000 long-term capital loss and $9,000 short-term capital loss.
B) $4,000 long-term capital loss and $3,000 short-term capital loss.
C) $8,000 ordinary loss and $3,000 short-term capital loss.
D) $8,000 ordinary loss and $5,000 short-term capital loss.
E) $8,000 long-term capital loss and $6,000 short-term capital loss.

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

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Question 33

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

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 never able to collect the judgement nor the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?

Mavis,age 70,is single with no dependents.The following information was obtained from her personal records for the current year: Based on the above information,what is Mavis's net operating loss for the current year?

Which of the following events would produce a deductible loss?

Last year,Amos had AGI of $50,000.Amos also had a diamond ring stolen which cost $20,000 and was worth $17,000 at the time of the theft.He itemized deductions on last year's tax return.In the current year,Amos recovered $17,000 from the insurance company.Therefore,he must include $11,900 in gross income on the tax return for the current year.

In 2012,Grant's personal residence was damaged by fire.Grant was insured for 90% of his actual loss,and he received the insurance settlement.Grant had adjusted gross income,before considering the casualty item,of $30,000.Pertinent data with respect to the residence follows: What is Grant's allowable casualty loss deduction?

How is qualified production activities income (QPAI)calculated?

Ralph is single and has the following items for the current year: In calculating Ralph's net operating loss,and with respect to the above amounts only,what amount must be added back to taxable income (loss) ?

Elizabeth has the following items for the current year: In calculating Elizabeth's net operating loss,and with respect to the above amounts only,what amount must be added back to taxable income (loss) ?

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.

A cash basis taxpayer can deduct the cost of a product sold even though the purchaser of the product ultimately does not pay the purchase price.

In 2012,Juan's home was burglarized.Juan had the following items stolen: Juan's homeowner's policy had a $50,000 deductible clause for thefts.If Juan's salary for the year is $50,000,determine the amount of his itemized deductions as a result of the theft.

In 2012,Morley,a single taxpayer,had an AGI of $30,000 before considering the following items: Determine the amount of Morley's itemized deduction from the losses.

What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each?

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.

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.

Juanita,single and age 43,had the following items for 2012: Compute Juanita's taxable income for 2012.

Last year,taxpayer had a $10,000 nonbusiness bad debt.Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000.If taxpayer collects the entire $10,000 during the current year,$8,000 needs to be included in gross income.