Exam 7: Deductions and Losses Certain Business Expenses and Losses

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.

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.

Nora,single,had the following income and deductions for 2016: Sales $ 50,000 Business expenses (100,000) Alimony received 30,000 Interest income 1,000 Dividends 2,000 Nonbusiness capital gains 4,000 § 1244 stock loss (18,000) Itemized deductions (4,000) Business capital loss (2,000) Business capital gain 1,000 ​ Compute Nora's net operating loss for 2016.

If investment property is stolen,the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

Discuss the tax treatment of non-reimbursed losses of an employee in connection with a trade or business.

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

What are the three methods of handling research and experimental expenditures incurred in a trade or business? Under what circumstances would you choose each?

The current position of the IRS is that a personal casualty loss deduction is not allowed for losses resulting from termites.

In 2016,Tan Corporation incurred the following expenditures in connection with the development of a new product: Salaries $ 60,000 Supplies 20,000 Depreciation on research equipment 10,000 Testing for quality control 5,000 Advertising 8,000 Overhead allocated to research 2,000 Tan began selling the product in November 2016.If Tan elects to amortize research and experimental expenditures,determine Tan's deduction for 2016.

Discuss the computation of NOL remaining to be carried forward after the NOL has been applied in a carryback year.

John had adjusted gross income of $60,000.During the year his personal use summer home was damaged by a fire.Pertinent data with respect to the home follows: Cost basis $260,000 Value before the fire 400,000 Value after the fire 100,000 Insurance recovery 270,000 ​ John had an accident with his personal use car.As a result of the accident,John was cited with reckless driving and willful negligence.Pertinent data with respect to the car follows: Cost basis $80,000 Value before the accident 56,000 Value after the accident 20,000 Insurance recovery 18,000 ​ What is John's itemized casualty loss deduction?

An NOL carryforward is used in determining the current year's charitable contribution deduction.

Five years ago,Tom loaned his son John $20,000 to start a business.A note was executed with an interest rate of 8%,which is the Federal rate.The note required monthly payments of the interest with the $20,000 due at the end of ten years.John always made the interest payments until last year.During the current year,John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800.Tom is an accrual basis taxpayer whose only income is salary and interest income.The proper treatment for the nonpayment of the note is:

The cost of depreciable property is not a research and experimental expenditure.

Julie,who is single,has the following items for 2016: ∙ Salary-$100,000. ∙ ​ ​ ​ ​ A hurricane completely destroyed Julie's duplex during the current year.Julie lived in one-half of the duplex and rented out the other half.Julie paid $400,000 for the duplex and has taken $80,000 of cost recovery on the rental portion of the duplex.The duplex was worth $420,000 at the time of the destruction.Julie's insurance policy paid her 90% of the fair market value of the duplex. ∙ ​ Household items destroyed in the hurricane had a basis of $15,000 and a fair market value of $8,500.There was no insurance recovery on the household items. ∙ Julie purchased a painting three years ago for $4,000.At the time of the hurricane,the painting was worth $10,000.Julie purchased the painting as an investment with the intent that she would sell it when its value exceeded $12,000.There was no insurance recovery on the painting. ∙ ​ ​ ​ Julie had an automobile accident in the current year.Julie used the car 100% for personal purposes.The car cost $37,000 and had a decline in FMV as a result of the accident of $5,000.The car was insured,but the policy had a $2,000 deductible clause.Julie chose not to file a claim for the damage. ∙ ​ ​ ​ ​ Julie owned a computer that she used 100% for business.The computer was also completely destroyed in the hurricane.It had a basis of $6,000 and a FMV of $4,000 at the time it was destroyed.Julie was not reimbursed by her employer for the loss on the computer. ∙ Home mortgage interest-$10,000. Determine the amount of Julie's taxable income for 2016. ​

John files a return as a single taxpayer.In 2016,he had the following items: ∙ Salary of $40,000. ∙ Loss of $65,000 on the sale of § 1244 stock acquired two years ago. ∙ Interest income of $6,000. Determine John's AGI for 2016.

An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss.

In 2016,Morley,a single taxpayer,had an AGI of $30,000 before considering the following items: Loss from damage to rental property ($6,000) Loss from theft of bonds (3,000) Personal casualty gain 4,000 Personal casualty loss (after $100 floor) (9,000) ​ Determine the amount of Morley's itemized deduction from the losses.

In the computation of a net operating loss,which of the following items is not added to the negative taxable income?

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