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Exam 7: Deductions and Losses Certain Business Expenses and Losses

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Question 51

Multiple Choice

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Bill,age 40,is married with two dependents.Bill had the following items for the 2016 year: Bill's business loss ($40,000) Bill's salary 50,000 Personal casualty gains 5,000 Personal casualty loss (after $100 floor) (23,000) Other itemized deductions (15,000) ​ Based on the above information,what is the net operating loss for Bill and his spouse for the 2016 year?

A) $0
B) ($5,000)
C) ($7,000)
D) ($12,000)
E) None of the above

F) B) and D)
G) C) and D)

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Question 52

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

A) True
B) False

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Question 53

Multiple Choice

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Steve and Holly have the following items for the current year: Dividend income $8,000 Interest income 7,000 Itemized deductions (none of the amount resulted from a casualty loss) (13,000) Business capital gains 1,000 Business capital losses (5,000) ​ In calculating their net operating loss,and with respect to the above amounts only,what amount must be added back to taxable income (loss) ?

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

If personal casualty gains exceed personal casualty losses (after deducting the $100 floor),there is no itemized deduction.

A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.

A bond held by an investor that is uncollectible will be treated as a worthless security and hence,produce a capital loss.

Mary incurred a $20,000 nonbusiness bad debt last year.She also had an $8,000 long-term capital gain last year.Her taxable income for last year was an NOL of $15,000.During the current year,she unexpectedly collected $12,000 on the debt.How should Mary account for the collection?

A father cannot claim a loss on his daughter's rental use property.

Janice,single,had the following items for the year 2016: Salary $30,000 Dividend income 8,000 Loss on § 1244 small business stock held for three years (45,000) Total itemized deductions (5,000) ​ Determine Janice's net operating loss for the year 2016.

In 2016,Mary had the following items: Salary $30,000 Personal use casualty gain 10,000 Personal use casualty loss (after $100 floor) 17,000 Other itemized deductions 4,000 ​ Assuming that Mary files as head of household (has one dependent child) ,determine her taxable income for 2016.

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?

Juanita,single and age 43,had the following items for 2016: Salary $60,000 Interest income 6,000 Casualty loss on business property (15,000) Casualty loss on rental property (5,000) Loss on theft of securities (8,000) Personal casualty gains 9,000 Personal casualty loss (after $100 floor) (13,000) Other itemized deductions (9,000) ​ Compute Juanita's taxable income for 2016.

A taxpayer can carry any NOL incurred forward up to 20 years.

Why was the domestic production activities deduction (DPAD)enacted by Congress?

Wu,who is single,has the following items for 2016: Salary $25,000 Interest income 8,000 Itemized deductions ($27,000 attributable to casualty loss) (32,000) ​ What is Wu's net operating loss for 2016?

Blue Corporation incurred the following expenses in connection with the development of a new product: Salaries $100,000 Utilities 18,000 Materials 25,000 Advertising 5,000 Market survey 3,000 Depreciation on machine 9,000 Blue expects to begin selling the product next year.If Blue elects to amortize research and experimental expenditures over 60 months,determine the amount of the deduction for research and experimental expenditures for the current year.

Elizabeth has the following items for the current year: Nonbusiness capital gains $ 5,000 Nonbusiness capital losses (3,000) Interest income 3,000 Itemized deductions (including a $20,000 casualty loss) (27,000) ​ 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) ?

If an election is made to defer deduction of research expenditures,the amortization period is based on the expected life of the research project if less than 60 months.

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.