Question 1

No deduction is allowed for a partially worthless nonbusiness debt.

Accepted Answer

A) True 
 B)False

Question 2

Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages.How much of the rental loss can he deduct?

Accepted Answer

A) $0 
B) $10,000 
C) $20,000 
D) $25,000 
A) $0 
B) $10,000 
C) $20,000 
D) $25,000

Question 3

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 will recognize

Accepted Answer

A) adjusted gross income of $80,000. 
B) salary of $120,000 and deductible net losses of $40,000. 
C) salary of $120,000,passive income of $60,000,and passive loss carryovers of $100,000. 
D) salary of $120,000 and net passive losses of $40,000 that will be carried over. 
A) adjusted gross income of $80,000. 
B) salary of $120,000 and deductible net losses of $40,000. 
C) salary of $120,000,passive income of $60,000,and passive loss carryovers of $100,000. 
D) salary of $120,000 and net passive losses of $40,000 that will be carried over.

Question 4

Justin has AGI of $110,000 before considering his $30,000 loss from rental property,which he actively manages.How much of the rental loss can Justin deduct this year?

Accepted Answer

A) $10,000 
B) $20,000 
C) $25,000 
D) $30,000 
A) $10,000 
B) $20,000 
C) $25,000 
D) $30,000

Question 5

A taxpayer incurs a net operating loss in the current year.With respect to the application of the NOL

Accepted Answer

A) the taxpayer will carry back the NOL three years first,then carry forward any balance for five years. 
B) the taxpayer must carry forward the loss and has up to 20 years to use it. 
C) the taxpayer can carry forward the loss indefinitely until there is sufficient taxable income to use it up. 
D) the taxpayer will first carry back the NOL for two years,then carry forward the balance for a period of 20 years,or the taxpayer can elect to only carry forward the loss for the 20-year allowable period. 
A) the taxpayer will carry back the NOL three years first,then carry forward any balance for five years. 
B) the taxpayer must carry forward the loss and has up to 20 years to use it. 
C) the taxpayer can carry forward the loss indefinitely until there is sufficient taxable income to use it up. 
D) the taxpayer will first carry back the NOL for two years,then carry forward the balance for a period of 20 years,or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.

Question 6

Last year,Abby loaned her friend,Pat,$10,000.Although Pat had signed a note payable that contained interest payments and a maturity date,the loan had not been repaid this year when Pat died insolvent.For this year,assuming that the loan was bona fide,Abby should account for nonpayment of the loan as a(n)

Accepted Answer

A) itemized deduction. 
B) ordinary loss. 
C) long-term capital loss. 
D) short-term capital loss. 
A) itemized deduction. 
B) ordinary loss. 
C) long-term capital loss. 
D) short-term capital loss.

Question 7

Franca has AGI of $130,000 this year.After applying the $100 floor,she has $26,000 of federally declared disaster losses on personal assets,$12,000 of non-federally declared casualty losses on personal assets,and $23,000 of personal casualty gains for the year.What is Franca's deductible casualty loss?

Accepted Answer

A) $15,000 
B) $0 
C) $13,000 
D) $2,000 
A) $15,000 
B) $0 
C) $13,000 
D) $2,000

Question 8

Classification of a loss as a capital or ordinary loss is based upon the length of time the asset was held.

Accepted Answer

A) True 
 B)False

Question 9

Erin,a single taxpayer,has 1,000 shares of 1244 stock she purchased directly from AAA Corporation for $120,000 five years ago.The stock now has a FMV of $30,000,and Erin is thinking of selling the stock.She has no other capital gains or losses for the year.Discuss the tax consequences and planning opportunities relating to selling the stock.

Accepted Answer

A single taxpayer may deduct up to $50,0

Question 10

The destruction of a capital asset due to a casualty will result in recognition of an ordinary loss.

Accepted Answer

A) True 
 B)False

Question 11

Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement.This is Juan's only casualty transaction this year.Juan's loss is

Accepted Answer

A) an ordinary loss. 
B) a capital loss. 
C) a Sec.1231 loss. 
D) a Sec.1244 loss. 
A) an ordinary loss. 
B) a capital loss. 
C) a Sec.1231 loss. 
D) a Sec.1244 loss.

Question 12

A taxpayer's rental activities will be considered a trade or business,rather than a passive activity,if

Accepted Answer

A) the taxpayer performs more than 750 hours of work during the year managing the rental properties. 
B) the taxpayer performs more than 500 hours of work during the year managing the rental properties. 
C) more than half of the taxpayer's personal services performed in all business activities during the year are spent managing the rental properties. 
D) conditions A and C,but not B,are satisfied. 
A) the taxpayer performs more than 750 hours of work during the year managing the rental properties. 
B) the taxpayer performs more than 500 hours of work during the year managing the rental properties. 
C) more than half of the taxpayer's personal services performed in all business activities during the year are spent managing the rental properties. 
D) conditions A and C,but not B,are satisfied.

Question 13

For purposes of applying the passive loss limitations for rental real estate,active participation requires a greater time commitment by the taxpayer than does material participation.

Accepted Answer

A) True 
 B)False

Question 14

A closely held C corporation's passive losses may offset its portfolio income.

Accepted Answer

A) True 
 B)False

Question 15

Daniel's cabin was destroyed in a massive tornado in 2019.After consideration of insurance,he has a loss of $15,000.Due to the tornado,the area has been declared a federal disaster area.Daniel can deduct this loss in

Accepted Answer

A) 2018. 
B) 2019. 
C) 2020. 
D) either 2018 or 2019. 
A) 2018. 
B) 2019. 
C) 2020. 
D) either 2018 or 2019.

Question 16

One of the requirements which must be met for stock to be considered Section 1244 stock is that the corporation cannot have more than $10 million of total capital and paid in surplus as of the stock issuance.

Accepted Answer

A) True 
 B)False

Question 17

Amy,a single individual and sole shareholder of Brown Corporation,sold all of the Brown stock for $30,000.Amy's stock basis was $150,000.She had owned the stock for 3 years.Brown Corporation meets the Section 1244 requirements.Amy has

Accepted Answer

A) a $50,000 ordinary loss and $70,000 LTCL. 
B) a $50,000 STCL and a $70,000 LTCL. 
C) a $100,000 ordinary loss and a $20,000 LTCL. 
D) a $100,000 LTCL and a $20,000 ordinary loss. 
A) a $50,000 ordinary loss and $70,000 LTCL. 
B) a $50,000 STCL and a $70,000 LTCL. 
C) a $100,000 ordinary loss and a $20,000 LTCL. 
D) a $100,000 LTCL and a $20,000 ordinary loss.

Question 18

Hope sustained a $3,600 casualty loss due to severe rainstorms classified as a federal disaster.She also incurred a $800 loss from a tornado also classified as a federal disaster in the same year.Both losses involved personal-use property.Hope's AGI for the year is $35,000 and she does not have insurance coverage.Hope's deductible casualty loss is

Accepted Answer

A) $700. 
B) $800. 
C) $4,200. 
D) $4,300. 
A) $700. 
B) $800. 
C) $4,200. 
D) $4,300.

Question 19

Beth and Bob are married entrepreneurs.Beth has a start-up sole proprietorship in which she works long hours.This year the business generated $500,000 of revenues and $800,000 of deductible business expenses.Bob is a partner in a new partnership,also working long hours.His share of the partnership loss for the year is $275,000.Fortunately,they both have trust funds so they are receiving $700,000 of taxable interest income and dividends in 2019.Due to this year's results,Beth and Bob will have an NOL carryover of

Accepted Answer

A) $0. 
B) $575,000. 
C) $325,000. 
D) $65,000. 
A) $0. 
B) $575,000. 
C) $325,000. 
D) $65,000.

Question 20

Ella is a cash method sole proprietor providing senior care services to clients.One of her clients passes away owing her $1,500 for services performed.Ella has been notified that there are no assets in the estate to pay her bill.Ella will be able to recognize a business bad debt.

Accepted Answer

A) True 
 B)False

Exam 25: Losses and Bad Debts

No deduction is allowed for a partially worthless nonbusiness debt.

Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages.How much of the rental loss can he deduct?

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 will recognize

Justin has AGI of $110,000 before considering his $30,000 loss from rental property,which he actively manages.How much of the rental loss can Justin deduct this year?

A taxpayer incurs a net operating loss in the current year.With respect to the application of the NOL

Classification of a loss as a capital or ordinary loss is based upon the length of time the asset was held.

The destruction of a capital asset due to a casualty will result in recognition of an ordinary loss.

Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement.This is Juan's only casualty transaction this year.Juan's loss is

A taxpayer's rental activities will be considered a trade or business,rather than a passive activity,if

For purposes of applying the passive loss limitations for rental real estate,active participation requires a greater time commitment by the taxpayer than does material participation.

A closely held C corporation's passive losses may offset its portfolio income.

Daniel's cabin was destroyed in a massive tornado in 2019.After consideration of insurance,he has a loss of $15,000.Due to the tornado,the area has been declared a federal disaster area.Daniel can deduct this loss in

One of the requirements which must be met for stock to be considered Section 1244 stock is that the corporation cannot have more than $10 million of total capital and paid in surplus as of the stock issuance.

Amy,a single individual and sole shareholder of Brown Corporation,sold all of the Brown stock for $30,000.Amy's stock basis was $150,000.She had owned the stock for 3 years.Brown Corporation meets the Section 1244 requirements.Amy has

Ella is a cash method sole proprietor providing senior care services to clients.One of her clients passes away owing her $1,500 for services performed.Ella has been notified that there are no assets in the estate to pay her bill.Ella will be able to recognize a business bad debt.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

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Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

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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