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

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Question 21

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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.

A) True
B) False

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Question 22

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

A) True
B) False

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Question 23

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A business bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.

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.

Steve and Holly have the following items for 2012: In calculating their net operating loss,and with respect to the above amounts only,what amount must be added back to taxable income (loss) ?

Jim had a car accident in 2012 in which his car was completely destroyed.At the time of the accident,the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for personal use.Jim received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000,determine his deductible loss on the car.

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?

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.

Tonya had the following items for last year: For the current year,Tonya had the following items: Determine Tonya's adjusted gross income for the current year.

Red Corporation incurred a $15,000 bad debt last year.Red Corporation also had an $9,000 long-term capital gain last year.Red's taxable income for last year was $100,000.During the current year,Red Corporation,unexpectedly,collected $7,000 on the debt.How should Red Corporation account for the $7,000 collection?

In 2012,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.

In 2012,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.

The amount of a farming loss cannot exceed the amount of the taxpayer's NOL for the taxable 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?

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

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

Last year,Green Corporation incurred the following expenditures in the development of a new plant process: During the current year,benefits from the project began being realized in May.If Green Corporation elects a 60 month deferral and amortization period,determine the amount of the deduction for the current year.

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 current year.

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

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?