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

Norm's car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2018. The car's adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 before considering the loss). What is Norm's deductible loss?

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

James is in the business of debt collection. He purchased a $20,000 account receivable from Green Corporation for $15,000. During the year, James collected $17,000 in final settlement of the account. James can take a $2,000 bad debt deduction in the current year.

A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

In 2018, personal casualty gains are allowed to offset personal casualty losses. If an excess casualty loss results, it is not deductible unless attributable to a Federally-declared disaster).

If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year.

Jose, single, had the following items for 2018: Salary \ 44,000 \S1244 loss on stock acquired 3 years ago (70,000) \S1244 gain on stock acquired 10 months ago 26,000 Worthless security purchased in June of last year (4,000) Nonbusiness bad debt (7,000) Interest income 8,000 Compute Jose's adjusted gross income for 2018

Two years ago, Gina loaned Tom $50,000. Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance. Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note. As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000. As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt. Last year, Gina had AGI of $50,000 which included $16,000 of net long-term capital gains. Gina did not itemize her deductions. During the current year, Tom paid Gina $13,000 in final settlement of the loan. How should Gina account for the payment in the current year?

In determining whether a debt is a business or nonbusiness bad debt, the debtor's use of the borrowed funds is important.

A loss is not allowed for a security that declines in value.

The excess of nonbusiness capital gains over nonbusiness capital losses must be added to taxable income to compute the net operating loss of an individual.

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

A bona fide debt cannot arise on a loan between father and son.

Last year, Lucy purchased a $100,000 account receivable for $90,000. During the current year, Lucy collected $97,000 on the account. What are the tax consequences to Lucy associated with the collection of the account receivable? No subsequent collections are expected.

Beginning in 2018, a personal casualty loss deduction is only allowed for losses occurring in a Federally-declared disaster area.

Several years ago, John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000. Last year, John sold one-half of his Red Corporation stock to Mike for $12,000. During the current year, John sold the remaining Red Corporation stock for $3,000. John has a $17,000 $3,000 - $20,000) ordinary loss for the current year.

A reimbursed employee business expense cannot create an NOL for an individual.

A theft of investment property can create or increase a net operating loss for an individual.

The excess business loss rule applies to partnerships and S corporations rather than partners and shareholders).

The amount of a business loss cannot exceed the amount of the taxpayer's NOL for the taxable year.