Question 1

Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss.She actively manages the property.Her deductible loss is

Accepted Answer

A) $0. 
B) $13,500. 
C) $25,000. 
D) $27,000. 
A) $0. 
B) $13,500. 
C) $25,000. 
D) $27,000.

Question 2

Lisa loans her friend,Grace,$10,000 to finance a new business.If Grace defaults on the loan,Lisa may take a deduction for a business bad debt in the year of total worthlessness.

Accepted Answer

A) True 
 B)False

Question 3

Juanita,who is single,lives in an area that suffered a major hurricane in 2019 which was declared a federal disaster.Her car sustained $6,200 in damages.Juanita does not expect to recover any of the loss from her insurance company.Juanita's 2019 AGI is $31,000,and she deducts a $3,000 loss after applying limitations on her 2019 tax return.Her other itemized deductions in 2019 exceed $12,200.In 2020,Juanita's insurance company reimburses her $2,800.Juanita's 2020 AGI is $28,000.As a result,Juanita must

Accepted Answer

A) amend 2019 to show a $200 loss. 
B) do nothing and simply keep the $2,800. 
C) do nothing to the 2019 return but report $2,800 of income on her 2020 return. 
D) amend the 2019 return to show $0 loss and file her 2020 return to show a $200 loss. 
A) amend 2019 to show a $200 loss. 
B) do nothing and simply keep the $2,800. 
C) do nothing to the 2019 return but report $2,800 of income on her 2020 return. 
D) amend the 2019 return to show $0 loss and file her 2020 return to show a $200 loss.

Question 4

Nancy reports the following income and loss in the current year. $$\begin{array} { | l | r | } 
\hline \text { Salary } & \$ 60,000 \
\hline \text { Income from activity A } & 18,000 \
\hline \text { Loss from activity B } & ( 9,000 ) \
\hline \text { Loss from activity C } & ( 13,000 ) \
\hline
\end{array}$$ All three activities are passive activities with respect to Nancy.Nancy also has $21,000 of suspended losses attributable to activity C carried over from prior years.During the year,Nancy sells activity C and realizes a $15,000 taxable gain.What is Nancy's AGI as a result of these transactions?

Accepted Answer

A) $50,000 
B) $55,000 
C) $64,000 
D) $71,000 
A) $50,000 
B) $55,000 
C) $64,000 
D) $71,000

Question 5

Jana reports the following income and loss: $$\begin{array} { | l | r | } 
\hline \text { Salary } & \$ 120,000 \
\hline \text { Income from activity A } & 60,000 \
\hline \text { Loss from activity B } & ( 30,000 ) \
\hline \text { Loss from activity C } & ( 70,000 ) \
\hline
\end{array}$$ Activities A,B,and C are all passive activities.
Based on this information,Jana has the following suspended losses

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline 30,000 & \$ 70,000\\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 0 & \$ 0 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 18,000 & \$ 42,000\\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline 12,000 & \$ 28,000\\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline 30,000 & \$ 70,000\\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 0 & \$ 0 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 18,000 & \$ 42,000\\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline 12,000 & \$ 28,000\\hline
\end{array}$$

Question 6

When personal-use property is covered by insurance,no deduction is available for a casualty loss of the property unless the taxpayer timely files an insurance claim for the loss.

Accepted Answer

A) True 
 B)False

Question 7

Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production.Vera made a $10,000 loan to the supplier.Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera.Vera will be able to recognize a loss of

Accepted Answer

A) $10,000. 
B) $3,000. 
C) $7,000. 
D) 0) 
A) $10,000. 
B) $3,000. 
C) $7,000. 
D) 0)

Question 8

Joy reports the following income and loss: $$\begin{array} { | l | r | } 
\hline \text { Salary } & \$ 120,000 \
\hline \text { Income from activity A } & 60,000 \
\hline \text { Loss from activity B } & ( 35,000 ) \
\hline \text { Loss from activity C } & ( 55,000 ) \
\hline
\end{array}$$ Activities A,B,and C are all passive activities.
Based on this information,Joy has the following suspended losses:

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 1,667 & \$ 18,333 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 35,000 & \$ 55,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline 10,000 & \$ 20,000\\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 0 & \$ 0 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 1,667 & \$ 18,333 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 35,000 & \$ 55,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline 10,000 & \$ 20,000\\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Activity B } & \text { Activity C } \
\hline \$ 0 & \$ 0 \
\hline
\end{array}$$

Question 9

Joy reports the following income and loss: $$\begin{array} { | l | r | } 
\hline \text { Salary } & \$ 120,000 \
\hline \text { Income from activity A } & 60,000 \
\hline \text { Loss from activity B } & ( 35,000 ) \
\hline \text { Loss from activity C } & ( 55,000 ) \
\hline
\end{array}$$ Activities A,B,and C are all passive activities.
Based on this information,Joy has

Accepted Answer

A) adjusted gross income of $90,000. 
B) salary of $120,000 and deductible net losses of $30,000. 
C) salary of $120,000 and net passive losses of $30,000 that will be carried over. 
D) salary of $120,000,passive income of $60,000,and passive loss carryovers of $90,000. 
A) adjusted gross income of $90,000. 
B) salary of $120,000 and deductible net losses of $30,000. 
C) salary of $120,000 and net passive losses of $30,000 that will be carried over. 
D) salary of $120,000,passive income of $60,000,and passive loss carryovers of $90,000.

Question 10

Brandon,a single taxpayer,had a loss of $48,000 from a rental real estate activity in which he actively participated.He also had $27,000 of income from another rental real estate activity in which he actively participated.He acquired both investments in the current year.If Brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities,how much net loss from rental activities can he use to offset his nonpassive income?

Accepted Answer

A) $21,000 
B) $24,000 
C) $25,000 
D) $45,000 
A) $21,000 
B) $24,000 
C) $25,000 
D) $45,000

Question 11

Leonard owns a hotel which was damaged by a hurricane.The hotel had an adjusted basis of $1,000,000 before the hurricane.A recent appraisal determined that the hotel's FMV was $1,500,000 before the hurricane and $700,000 afterwards.Leonard received insurance proceeds of $500,000.His AGI is $60,000.What is the amount of his deductible casualty loss?

Accepted Answer

A) $293,900 
B) $300,000 
C) $793,900 
D) $800,000 
A) $293,900 
B) $300,000 
C) $793,900 
D) $800,000

Question 12

Constance,who is single,lives in an area that suffered a major hurricane in 2019 which was declared a federal disaster.Her car sustained $6,200 in damages.Constance does not expect to recover any of the loss from her insurance company.Constance's 2019 AGI is $31,000.Her casualty loss is $3,000; she has other itemized deductions of $5,200.In 2020,Constance's insurance company reimburses her $2,800.Constance's 2020 AGI is $28,000.As a result,Constance must

Accepted Answer

A) amend the 2019 return to show the $200 loss. 
B) do nothing and simply keep the $2,800. 
C) amend the 2019 return to show $0 loss and file her 2020 return to show $200 loss. 
D) do nothing to the 2019 return but report $2,800 of income on her 2020 return. 
A) amend the 2019 return to show the $200 loss. 
B) do nothing and simply keep the $2,800. 
C) amend the 2019 return to show $0 loss and file her 2020 return to show $200 loss. 
D) do nothing to the 2019 return but report $2,800 of income on her 2020 return.

Question 13

An individual taxpayer has negative taxable income for the year.In calculating the net operating loss created,which of the following expenses or losses will be added back to the negative taxable income?

Accepted Answer

A) capital losses 
B) nonbusiness deductions in excess of nonbusiness income 
C) both of the above 
D) none of the above 
A) capital losses 
B) nonbusiness deductions in excess of nonbusiness income 
C) both of the above 
D) none of the above

Question 14

In the case of loans between related parties,without proper documentation the lender faces the risk that the IRS will reclassify the loan as a bonus.

Accepted Answer

A) True 
 B)False

Question 15

Individual taxpayers can offset interest and dividend income with passive losses.

Accepted Answer

A) True 
 B)False

Question 16

In 2019,Grace loaned her friend Paula $12,000 to invest in various stocks.Paula signed a note to repay the principal with interest.Unfortunately the market for that industry sector plunged,and Paula incurred large losses.In 2019,Paula declared personal bankruptcy and Grace was unable to collect any of her loan.Grace had no other gains or losses last year or this year.The result is

Accepted Answer

A) Grace deducts a business bad debt of $12,000 in 2019. 
B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2019. 
C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2019 and carries $9,000 over to subsequent years. 
D) Grace deducts a business bad debt of $3,000 in 2019 and carries $9,000 over to subsequent years. 
A) Grace deducts a business bad debt of $12,000 in 2019. 
B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2019. 
C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2019 and carries $9,000 over to subsequent years. 
D) Grace deducts a business bad debt of $3,000 in 2019 and carries $9,000 over to subsequent years.

Question 17

Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

Accepted Answer

A) True 
 B)False

Question 18

In order to be recognized and deducted on a tax return,a loss must first be realized.

Accepted Answer

A) True 
 B)False

Question 19

Myriah earns salary of $80,000 and $20,000 of dividend income from her stock portfolio this year.Myriah owns a passive activity from which she incurs a $10,000 loss.In addition,the passive activity has generated tax credits this year,and Myriah's share is $5,000.What portion of the $5,000 of tax credits can Myriah apply against her tax liability this year?

Accepted Answer

A) $0 
B) $1,000 
C) $2,000 
D) $5,000 
A) $0 
B) $1,000 
C) $2,000 
D) $5,000

Question 20

Stacy,who is married and sole shareholder of ABC Corporation,sold all of her stock in the corporation for $100,000.Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation.ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots.The stock in ABC Corporation qualified as Sec.1244 stock.The sale results in a(n)

Accepted Answer

A) ordinary loss of $125,000. 
B) long-term capital loss of $125,000. 
C) long-term capital loss of $100,000 and ordinary loss of $25,000. 
D) ordinary loss of $100,000 and long-term capital loss of $25,000. 
A) ordinary loss of $125,000. 
B) long-term capital loss of $125,000. 
C) long-term capital loss of $100,000 and ordinary loss of $25,000. 
D) ordinary loss of $100,000 and long-term capital loss of $25,000.

Exam 25: Losses and Bad Debts

Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss.She actively manages the property.Her deductible loss is

Lisa loans her friend,Grace,$10,000 to finance a new business.If Grace defaults on the loan,Lisa may take a deduction for a business bad debt in the year of total worthlessness.

Jana reports the following income and loss: Salary \ 120,000 Income from activity A 60,000 Loss from activity B (30,000) Loss from activity C (70,000) Activities A,B,and C are all passive activities. Based on this information,Jana has the following suspended losses

When personal-use property is covered by insurance,no deduction is available for a casualty loss of the property unless the taxpayer timely files an insurance claim for the loss.

Joy reports the following income and loss: Salary \ 120,000 Income from activity A 60,000 Loss from activity B (35,000) Loss from activity C (55,000) Activities A,B,and C are all passive activities. Based on this information,Joy has the following suspended losses:

Joy reports the following income and loss: Salary \ 120,000 Income from activity A 60,000 Loss from activity B (35,000) Loss from activity C (55,000) Activities A,B,and C are all passive activities. Based on this information,Joy has

An individual taxpayer has negative taxable income for the year.In calculating the net operating loss created,which of the following expenses or losses will be added back to the negative taxable income?

In the case of loans between related parties,without proper documentation the lender faces the risk that the IRS will reclassify the loan as a bonus.

Individual taxpayers can offset interest and dividend income with passive losses.

Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

In order to be recognized and deducted on a tax return,a loss must first be realized.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

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Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

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Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

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Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

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