Question 1

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

Accepted Answer

A) True 
 B)False  True

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 A

Question 3

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

Accepted Answer

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

Question 4

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 5

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 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 6

Before consideration of stock sales,Rex has generated $150,000 of AGI this year due to salary,interest income and dividends.Rex is a single taxpayer.He plans to sell his shares of Trisco Inc.,a qualifying small business corporation under Sec.1244,realizing a $110,000 loss.Due to the sale of the stock,he will reduce his AGI by

Accepted Answer

A)  $3,000. 
B)  $110,000. 
C)  $50,000. 
D)  $53,000. 
A)  $3,000. 
B)  $110,000. 
C)  $50,000. 
D)  $53,000.

Question 7

In February 2017,Amelia's home,which originally cost $150,000,is damaged by a windstorm.Amelia had refinanced the home shortly before the storm,and it was appraised at $200,000.After the storm,the home appraised at $120,000.Amelia has received no insurance reimbursement by December 31,but expects to recover 90 percent of the loss.In the subsequent year,the insurance company pays Amelia $50,000.Amelia's AGI is $85,000 in 2017,and her 2018 AGI is $80,000.Amelia suffers no other casualty losses in either year.Amelia may deduct

Accepted Answer

A)  $7,900 in 2017. 
B)  $22,000 in 2018. 
C)  $13,900 in 2018. 
D)  $14,000 in 2018. 
A)  $7,900 in 2017. 
B)  $22,000 in 2018. 
C)  $13,900 in 2018. 
D)  $14,000 in 2018.

Question 8

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 9

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 10

Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss.Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie.During this year,activity B produces a $9,000 loss.In addition,Charlie acquires an investment in activity X,a passive activity,this year.Charlie's share of activity X's income is $13,000.Charlie's salary this year is $70,000.As a result,this year Charlie must

Accepted Answer

A)  offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year. 
B)  offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary. 
C)  offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income. 
D)  offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year. 
A)  offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year. 
B)  offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary. 
C)  offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income. 
D)  offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

Question 11

This summer,Rick's home (which has a basis of $80,000) is damaged by a tornado.An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado.Rick estimates that the insurance company will reimburse him for 60% of the loss.Next year,the insurance company pays Rick $20,000.Rick's current year's AGI is $50,000 and his next year's AGI is $55,000.Rick suffers no other casualty losses in either year.After limitations,Rick may deduct a casualty loss this year of

Accepted Answer

A)  $ 8,900. 
B)  $ 9,900. 
C)  $15,000. 
D)  $35,000. 
A)  $ 8,900. 
B)  $ 9,900. 
C)  $15,000. 
D)  $35,000.

Question 12

No deduction is allowed for a partially worthless nonbusiness debt.

Accepted Answer

A) True 
 B)False

Question 13

In the current year,Marcus reports the following casualty gains and losses on personal-use property.Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty.
 
As a result of these losses and insurance recoveries,Marcus must report

Accepted Answer

A)  a net gain of $3,700. 
B)  a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. 
C)  a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. 
D)  a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z. 
A)  a net gain of $3,700. 
B)  a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. 
C)  a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. 
D)  a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z.

Question 14

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 15

All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of

Accepted Answer

A)  the stock must be owned by an individual or a partnership. 
B)  the stock must have been issued by a domestic corporation. 
C)  the stock must have been issued for cash or property other than stock or securities. 
D)  a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses. 
A)  the stock must be owned by an individual or a partnership. 
B)  the stock must have been issued by a domestic corporation. 
C)  the stock must have been issued for cash or property other than stock or securities. 
D)  a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

Question 16

Due to an unusual event,a taxpayer has a large loss in the current year,resulting in an NOL.The taxpayer expects next year's taxable income to return to the same approximate amount he reported in last few years,however he expects his income tax rate to decrease due to the recent election results.The taxpayer should elect to forego the carryback period.

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

Mara owns an activity with suspended passive losses from prior years of $13,000.In the current year,Mara becomes a material participant in the activity.This year the activity generates $6,000 of income.The net effect of this activity on Mara's current year AGI is

Accepted Answer

A)  an increase of $6,000. 
B)  a decrease of $13,000. 
C)  0. 
D)  a decrease of $7,000. 
A)  an increase of $6,000. 
B)  a decrease of $13,000. 
C)  0. 
D)  a decrease of $7,000.

Question 19

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 20

Once an activity has been classified as passive,it is considered passive with regard to that taxpayer until it is sold.

Accepted Answer

A) True 
 B)False

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

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

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

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.

No deduction is allowed for a partially worthless nonbusiness debt.

In the current year,Marcus reports the following casualty gains and losses on personal-use property.Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty. As a result of these losses and insurance recoveries,Marcus must report

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.

All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of

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

Mara owns an activity with suspended passive losses from prior years of $13,000.In the current year,Mara becomes a material participant in the activity.This year the activity generates $6,000 of income.The net effect of this activity on Mara's current year AGI is

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

Once an activity has been classified as passive,it is considered passive with regard to that taxpayer until it is sold.

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Employee Expenses and Deferred Compensation

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

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters

Exam 8: Losses and Bad Debts

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

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

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

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.

No deduction is allowed for a partially worthless nonbusiness debt.

In the current year,Marcus reports the following casualty gains and losses on personal-use property.Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty. As a result of these losses and insurance recoveries,Marcus must report

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.

All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of

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

Mara owns an activity with suspended passive losses from prior years of $13,000.In the current year,Mara becomes a material participant in the activity.This year the activity generates $6,000 of income.The net effect of this activity on Mara's current year AGI is

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

Once an activity has been classified as passive,it is considered passive with regard to that taxpayer until it is sold.

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Employee Expenses and Deferred Compensation

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

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters