Exam 25: Losses and Bad Debts

Javier incurred a $40,000 net operating loss in 2019.In 2020,he earned $35,000 of taxable income.Javier will be able to take an NOL deduction in 2020 of

Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.

Losses incurred in the sale or exchange of personal-use property are deductible as capital losses.

A taxpayer's home in California is destroyed by wildfires which have been declared a federal disaster.The home's destruction results in a large casualty loss deduction exceeding the taxpayer's income.The taxpayer will be allowed to carry forward a net operating loss due to this personal loss.

Nicole has a weekend home on Pecan Island that she purchased in 2013 for $250,000.Recently,the home was appraised at $260,000.After the appraisal,a hurricane hit Pecan Island,severely damaging Nicole's home.The hurricane was declared a federal disaster.An appraisal placed the value of the home at $140,000 after the hurricane.Because of its prohibitive cost,Nicole had no hurricane insurance.Before any reductions or limitations,Nicole's casualty loss amount is

A fire totally destroyed office equipment and furniture which Monica uses in her business.The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire.The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire.Monica's AGI for the year is $60,000.Monica does not have insurance on the destroyed assets.How much is Monica's deductible casualty loss?

In 2019,a single taxpayer earns $1 million of income from salary,interest,dividends and capital gains.The taxpayer has a $300,000 passive loss carryover from an investment in a limited partnership which he has now sold.The taxpayer will be able to deduct the full $300,000 passive loss carryover.

The amount realized by Matt on the sale of property to Caitlin includes all of the following with the exception of

A taxpayer is entitled to a deduction for a casualty loss which occurred in a federal disaster area in mid-summer 2019.The taxpayer would prefer to take the casualty loss deduction in 2018 because he had a higher marginal tax rate that year.Since the taxpayer has already filed his 2018 tax return,he will not be able to take advantage of the option.

A taxpayer has low AGI this year,but unusually high itemized deductions.The one itemized deduction that is allowed to increase the NOL is

Individuals who actively participate in the management of rental real property may deduct up to $25,000 in losses,subject to AGI limitations.

A theft loss is deducted in the year in which the theft is discovered.

In the case of casualty losses of personal-use property in a federally declared disaster,the losses sustained in each separate casualty are reduced by both $100 and 10 percent of the taxpayer's AGI for the year.

This summer,Rick's home (which has a basis of $80,000)is damaged by a tornado which was declared a federal disaster.An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado.Rick estimates that the insurance company will reimburse him for 60% of the loss.Next year,the insurance company pays Rick $20,000.Rick's current year's AGI is $50,000 and his next year's AGI is $55,000.Rick suffers no other casualty losses in either year.After limitations,Rick may deduct a casualty loss this year of

If a taxpayer suffers a loss attributable to a disaster in an area subsequently declared a disaster area,the casualty loss may be deducted in the year preceding the year in which the loss actually occurs.

A net operating loss can be carried back three years or carried forward five years.

A loss incurred on the sale or exchange of property is deductible only if the property is used in a trade or business or held for investment.

Mara owns an activity with suspended passive losses from prior years of $13,000.In the current year,Mara becomes a material participant in the activity.This year the activity generates $6,000 of income.The net effect of this activity on Mara's current year AGI is

During the year,Mark reports $90,000 of active business income from his law practice.He also owns two passive activities.From Activity A,he earns $20,000 of income,and from Activity B,he incurs a $30,000 loss.As a result,Mark

Jorge owns activity X which produced a $20,000 passive loss last year.Jorge's only income last year was wages of $30,000.Jorge is a material participant in activity X this year when it produces a $14,000 loss.This year,Jorge's wages are $40,000.This year,Jorge also has passive activity income from activity Y of $16,000.What is the total passive activity loss carryover to next year?