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

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Question 41

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

A) True
B) False

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Question 42

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If investment property is stolen, the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

A) True
B) False

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Question 43

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Several years ago, John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000. Last year, John sold one-half of his Red Corporation stock to Mike for $12,000. During the current year, John sold the remaining Red Corporation stock for $3,000. John has a $17,000 ($3,000 - $20,000) ordinary loss for the current year.

The excess business loss rule applies to partnerships and S corporations (rather than partners and shareholders).

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.

In 2018, Grant's personal residence was completely destroyed by fire. Grant was insured for 100% 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?

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

John had adjusted gross income of $60,000 in 2018. During the year his personal use summer home was damaged by a fire. Pertinent data with respect to the home follows: John had an accident with his personal use car. As a result of the accident, John was cited with reckless driving and willful negligence. Pertinent data with respect to the car follows: What is John's itemized casualty loss deduction?

A net operating loss occurring in 2018 can only be carried forward and can offset no more than 80% of taxable income in a subsequent year.

In 2018, Tan Corporation incurred the following expenditures in connection with the development of a new product: Tan began selling the product in November 2018. If Tan elects to amortize research and experimental expenditures, determine Tan's deduction for 2018.

In 2018, Theo, a single taxpayer, operates a sole proprietorship in which he materially participates. His proprietorship generates gross income of $320,000 and deductions of $600,000, resulting is a loss of $280,000. The large deductions are due to the acquisition of equipment and the use of immediate expense and additional first-year depreciation to deduct all of the acquisitions. What is Theo's excess business loss for the year?

In 2018, personal casualty gains are allowed to offset personal casualty losses. If an excess casualty loss results, it is not deductible (unless attributable to a Federally-declared disaster).

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

Jim had a car accident in 2018 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 business 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.

In 2018, Cindy is married and files a joint return. She operates a sole proprietorship in which she materially participates. Her proprietorship generates gross income of $225,000 and deductions of $525,000, resulting in a loss of $300,000. What is Cindy's excess business loss for the year?

In 2017, Robin Corporation incurred the following expenditures in connection with the development of a new product: In 2018, Robin incurred the following additional expenditures in connection with the development of the product: In October 2018, Robin began receiving benefits from the project. If Robin elects to expense research and experimental expenditures, determine the amount and year of the deduction.

On September 3, 2017, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000. On December 31, 2017, the stock was worth $85,000. On August 15, 2018, Able was notified that the stock was worthless. How should Able report this item on his 2018 tax return?

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

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

Bruce, who is single, had the following items for the current year: ? Salary of $80,000. ? Gain of $20,000 on the sale of § 1244 stock acquired two years earlier. ? Loss of $75,000 on the sale of § 1244 stock acquired three years earlier. ? Worthless stock of $15,000. The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year. Determine Bruce's AGI for the current year.