Exam 24: Losses and Bad Debts

Aretha has AGI of less than $100,000 and a 25% marginal tax rate.During the year,she reports a $36,000 loss from Activity A and a $24,000 loss from Activity B.Additionally,Activity A generates $8,000 of tax credits.Both activities A and B are passive real estate rental activities in which Anita actively participates and owns over 10% of each activity. a.How much loss can be recognized from each activity? b.What is the amount of Aretha's suspended loss from each activity? c.How much of the tax credits can be applied this year?

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

Partnerships and S corporations must classify their business and rental activities by applying the passive activity rules at the partnership or S corporation level and then must report the results of their operations by activity to the partners or shareholders.

Jarrett owns a mountain chalet that he purchased in 2008 for $175,000.This year,the home appraised at $300,000.Shortly after the appraisal,a blizzard hit the area in spring of the current year,destroying trees and severely damaging several homes,including Jarrett's chalet.Its value was reduced to $135,000.Jarrett does not have insurance.Jarrett's AGI is $200,000.Jarrett's deductible loss after limitations is

Taj operates a sole proprietorship,maintaining the business records under the cash-basis method of accounting.Taj performs services for a client and sends the client a bill for $12,000.Six months later,before payment is received by Taj,the client files bankruptcy,with no assets available for unsecured creditors such as Taj.Taj will deduct

Taxpayers are allowed to recognize net passive losses from all activities up to a ceiling of $25,000.

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.

A loss on business or investment property which is abandoned is deductible as an ordinary loss to the extent of the property's adjusted basis on the date of abandonment.

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.

Frank loaned Emma $5,000 in 2015 with the agreement that the loan would be repaid in three years.In 2016,Emma filed for bankruptcy and,based on available information from the bankruptcy court,it was estimated that Frank could expect to receive $.65 on the dollar.In 2017,final settlement was made and Frank received $600. a.Assuming the loan is a business bad debt,what is the amount of and the nature of Frank's deduction in 2016? b.Assuming the loan is a business bad debt,what is the amount of and the nature of Frank's deduction in 2017? c.Assuming instead that the loan is a nonbusiness bad debt,what is the amount of and the nature of Frank's deduction in 2016 and 2017?

Determine the net deductible casualty loss on Schedule A for Alan Michael when his adjusted gross income was $40,000 in 2017 and the following occurred: A and B were destroyed in the same casualty in March.C was destroyed in a separate casualty in July. All casualty losses were nonbusiness personal-use property losses and none occurred in a federally declared disaster area. What is the amount of the net deductible casualty loss?

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

Wesley completely demolished his personal automobile in a car accident.Damage to the auto was estimated at $35,000.Wesley had purchased the car a few years ago for $60,000.He received an insurance reimbursement of $28,000.His adjusted gross income this year was $55,000 and he incurred no other losses during the year.What amount can he deduct as a casualty loss on his income tax return after limitations?

Ella is a cash-basis 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.

In 2000,Michael purchased land for $100,000.Over the years,economic conditions deteriorated,and the value of the land declined to $60,000.Michael sells the property in this year,when it is subject to a $30,000 nonrecourse mortgage.The buyer pays Michael $34,000 cash and takes the property subject to the mortgage.Michael incurs $5,000 in real estate commissions.Michael's gain or loss on the sale 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 bona fide debtor-creditor relationship can never exist in the case of related parties.

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

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.

Juanita,who is single,is in an automobile accident in 2017 and her car sustains $6,200 in damages.Juanita does not expect to recover any of the loss from her insurance company.Juanita's 2017 AGI is $31,000,and she deducts a $3,000 loss after applying limitations on her 2017 tax return.Her other itemized deductions in 2017 exceed $12,000.In 2018,Juanita's insurance company reimburses her $2,800.Juanita's 2018 AGI is $28,000.As a result,Juanita must