Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

A taxpayer guarantees another person's obligation and is forced to pay the debt under the terms of the guarantee.The original debtor does not repay the taxpayer.The taxpayer/guarantor may deduct the loss.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) reports AGI of $80,000. 
B) reports AGI of $90,000 with a $10,000 passive loss carryover. 
C) reports AGI of $90,000 with a $30,000 passive loss carryover. 
D) reports AGI of $110,000 with a $30,000 passive loss carryover. 
A) reports AGI of $80,000. 
B) reports AGI of $90,000 with a $10,000 passive loss carryover. 
C) reports AGI of $90,000 with a $30,000 passive loss carryover. 
D) reports AGI of $110,000 with a $30,000 passive loss carryover.

Question 4

In October 2017,Jonathon Remodeling Co. ,an accrual-method taxpayer,remodels and renovates an office building for Dale and bills him $30,000.Dale signs a note for the debt.Dale keeps delaying payment and files bankruptcy in 2018.Creditors are informed that no assets are available for payment.Jonathon Remodeling Co.will report

Accepted Answer

A) $0 income in both years. 
B) $30,000 income in 2017 and a bad debt deduction of $30,000 in 2018. 
C) $30,000 income in 2017 and a STCL of $30,000 in 2018 limited to $3,000 after netting. 
D) $30,000 income in 2017 and then must amend last year's return to show $0 income when advised of the bankruptcy. 
A) $0 income in both years. 
B) $30,000 income in 2017 and a bad debt deduction of $30,000 in 2018. 
C) $30,000 income in 2017 and a STCL of $30,000 in 2018 limited to $3,000 after netting. 
D) $30,000 income in 2017 and then must amend last year's return to show $0 income when advised of the bankruptcy.

Question 5

A taxpayer may deduct suspended losses of a passive activity when the taxpayer completely terminates his or her ownership of the activity.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

No deduction is allowed for a partially worthless nonbusiness debt.

Accepted Answer

A) True 
 B)False

Question 8

Joy reports the following income and loss:   Activities A,B,and C are all passive activities.
Based on this information,Joy has the following suspended losses:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

When the taxpayer anticipates a full recovery on a casualty loss of personal-use property but receives less than full recovery in a subsequent year,the unrecovered portion may be deducted.

Accepted Answer

A) True 
 B)False

Question 11

For purposes of the application of the passive loss limitations,a closely held C corporation is a C corporation in which more than 50 percent of the stock is owned by five or fewer individuals at any time during the last half of the taxable year.

Accepted Answer

A) True 
 B)False

Question 12

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 13

A taxpayer suffers a casualty loss on personal-use property for which he has insurance coverage.However,to avoid a premium increase,the taxpayer fails to make a timely claim.In this situation is the full deduction for the casualty,after the normal floors,available to the taxpayer? Why or why not?

Accepted Answer

No deduction is allowed.Sec.16

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Constance,who is single,is in an automobile accident in 2017,and her car sustains $6,200 in damages.Constance does not expect to recover any of the loss from her insurance company.Constance's 2017 AGI is $31,000.Her casualty loss is $3,000; she has other itemized deductions of $1,200.In 2018,Constance's insurance company reimburses her $2,800.Constance's 2018 AGI is $28,000.As a result,Constance must

Accepted Answer

A) amend the 2017 return to show the $200 loss. 
B) do nothing and simply keep the $2,800. 
C) amend the 2017 return to show $0 loss and file her 2018 return to show $200 loss. 
D) do nothing to the 2017 return but report $2,800 of income on her 2018 return. 
A) amend the 2017 return to show the $200 loss. 
B) do nothing and simply keep the $2,800. 
C) amend the 2017 return to show $0 loss and file her 2018 return to show $200 loss. 
D) do nothing to the 2017 return but report $2,800 of income on her 2018 return.

Question 16

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

Accepted Answer

A) cash received by Matt. 
B) mortgage on the property that is assumed by Caitlin. 
C) mortgage on the property paid off by Matt prior to the sale. 
D) the FMV of any other property received by Matt in the transaction. 
A) cash received by Matt. 
B) mortgage on the property that is assumed by Caitlin. 
C) mortgage on the property paid off by Matt prior to the sale. 
D) the FMV of any other property received by Matt in the transaction.

Question 17

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.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

Accepted Answer

A) $0. 
B) $10,000. 
C) $120,000. 
D) $140,000. 
A) $0. 
B) $10,000. 
C) $120,000. 
D) $140,000.

Question 18

All of the following losses are deductible except

Accepted Answer

A) decline in value of securities. 
B) total worthlessness of securities. 
C) abandonment of business property. 
D) destruction of personal-use property by fire,storm,or casualty. 
A) decline in value of securities. 
B) total worthlessness of securities. 
C) abandonment of business property. 
D) destruction of personal-use property by fire,storm,or casualty.

Question 19

Why did Congress enact restrictions and limitations on losses from passive activities?

Accepted Answer

If there were no restrictions or limitat

Question 20

A business bad debt gives rise to an ordinary deduction while a nonbusiness bad debt is treated as a short-term capital loss.

Accepted Answer

A) True 
 B)False

Exam 24: Losses and Bad Debts

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

A taxpayer guarantees another person's obligation and is forced to pay the debt under the terms of the guarantee.The original debtor does not repay the taxpayer.The taxpayer/guarantor may deduct the loss.

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

A taxpayer may deduct suspended losses of a passive activity when the taxpayer completely terminates his or her ownership of the activity.

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

No deduction is allowed for a partially worthless nonbusiness debt.

Joy reports the following income and loss: Activities A,B,and C are all passive activities. Based on this information,Joy has the following suspended losses:

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

When the taxpayer anticipates a full recovery on a casualty loss of personal-use property but receives less than full recovery in a subsequent year,the unrecovered portion may be deducted.

For purposes of the application of the passive loss limitations,a closely held C corporation is a C corporation in which more than 50 percent of the stock is owned by five or fewer individuals at any time during the last half of the taxable year.

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.

A taxpayer suffers a casualty loss on personal-use property for which he has insurance coverage.However,to avoid a premium increase,the taxpayer fails to make a timely claim.In this situation is the full deduction for the casualty,after the normal floors,available to the taxpayer? Why or why not?

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

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

All of the following losses are deductible except

Why did Congress enact restrictions and limitations on losses from passive activities?

A business bad debt gives rise to an ordinary deduction while a nonbusiness bad debt is treated as a short-term capital loss.

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