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

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Question 31

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Losses on rental property are classified as deductions for AGI.

A) True
B) False

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Question 32

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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.

A) True
B) False

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Question 33

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If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than it's adjusted basis, a gain is recognized.

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.

In 2017, 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 2018, 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.

The purpose of the "excess business loss" rules are to limit the amount of non-business income

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?

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

The cost of depreciable property is not a research and experimental expenditure.

When a net operating loss is carried forward, the net operating loss can affect the medical expense deduction of that year.

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

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?

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: $\begin{array}{llcc} \text {Cost basis}&\$ 260,000\\ \text {Value before the fire}&400,000\\ \text {Value after the fire}&100,000\\ \text {Insurance recovery}& 270,000\\\end{array}$ 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: $\begin{array}{llcc} \text {Cost basis}&\$ 80,000\\ \text {Value before the accident}&56,000\\ \text {Value after theaccident}&20,000\\ \text {Insurance recovery}& 18,000\\\end{array}$ What is John's itemized casualty loss deduction?

If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

Nonbusiness income for net operating loss purposes includes dividends received.

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?

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 the computation of a net operating loss, which of the following items is not added to the negative taxable income?

On June 2, 2017, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000. Fred's TV Sales uses the accrual method. In 2018, when the balance on the account was $8,000, Mark filed for bankruptcy. Fred was notified that he could not expect to receive any of the amount owed to him. In 2019, final settlement was made and Fred received $1,000. How much bad debt loss can Fred deduct in 2019?

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.