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

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Question 41

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In 2010,Theo had a salary of $30,000 and experienced the following losses: Determine the amount of Theo's itemized deduction from these losses.

A) $0.
B) $2,800.
C) $2,900.
D) $4,580.
E) None of the above.

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

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Question 42

Multiple Choice

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If a taxpayer has an NOL in 2010 of $20,000,of which $8,000 is attributable to a theft of personal use property,the taxpayer may:

A) Carry all of the NOL of $20,000 back 5 years.
B) Carry all of the NOL of $20,000 back 3 years.
C) Carry $8,000 of the NOL back 3 years and the remainder of the NOL of $12,000 back 2 years.
D) All of the above.
E) None of the above.

F) All of the above
G) A) and C)

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Question 43

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

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

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 still be subject to the 10%-of-AGI reduction based on the AGI of the current year.

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.

In 2010,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 $60,000,determine the amount of his itemized deductions as a result of the theft.

In 2010,Wally had the following insured personal casualty losses (arising from one casualty) .Wally also had $48,000 AGI for the year. Wally's casualty loss deduction is:

Al,who is single,has a gain of $20,000 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 $10,000 net capital loss and a $50,000 ordinary loss.

Accrual basis taxpayers can use the reserve method for computing deductions for bad debts.

Red Corporation incurred a $12,000 bad debt last year.Red Corporation also had an $8,000 long-term capital gain last year.Red's taxable income for last year was $28,000.During the current year,Red Corporation,unexpectedly,collected $5,000 on the debt.How should Red Corporation account for the $5,000 collection?

James is in the business of debt collection.He purchased a $20,000 account receivable from Green Corporation for $15,000.During the year,James collected $17,000 in final settlement of the account.James can take a $3,000 bad debt deduction in the current year.

For tax years beginning in 2010,the domestic production activities deduction (DPAD)for a sole proprietor is calculated by multiplying 9% times the lesser of (1)qualified production activities income (QPAI)or (2)taxable income or alternative minimum taxable income.

Green,Inc. ,manufactures and sells widgets.During 2010,an examination of the company records showed the following items: Determine Green's domestic production activities deduction for 2010.

Three years ago,Sharon loaned her sister $30,000 to buy a car.A note was issued for the loan with the provision for monthly payments of principal and interest.Last year,Sharon purchased a car from the same dealer,Hank's Auto.As partial payment for the car,the dealer accepted the note from Sharon's sister.At the time Sharon purchased the car,the note had a balance of $18,000.During the current year,Sharon's sister died.Hank's Auto was notified that no further payments on the note would be received.At the time of the notification,the note had a balance due of $15,500.What is the amount of loss,with respect to the note,that Hank's Auto may claim on the current year tax return?

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

How is qualified production activities income (QPAI)calculated?

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 ($500 in 2009)and 10% of AGI.

If a taxpayer receives reimbursement for a casualty loss sustained and deducted in a previous year,the total reimbursement must be included in gross income on the return for the year in which the reimbursement is received.

Regarding research and experimental expenditures,which of the following are not qualified expenditures?