Question 1

Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.

Accepted Answer

A) True 
 B)False

Question 2

Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

Accepted Answer

A) True 
 B)False

Question 3

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?

Accepted Answer

The answer of Determine the net deductible casualty loss on...

Question 4

A taxpayer uses an allowance method (i.e.aging method) of calculating bad debt expense for purposes of the business' financial statements.For income tax purposes,she will also use the allowance method to calculate the bad debt deduction.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

If there were no restrictions or limitat

Question 6

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 7

Lewis died during the current year.Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000.Suspended losses of $15,000 were attributable to the property.How much of the suspended loss is deductible on Lewis's final income tax return?

Accepted Answer

A)  $0 
B)  $2,000 
C)  $13,000 
D)  $15,000 
A)  $0 
B)  $2,000 
C)  $13,000 
D)  $15,000

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  $4,000 gain. 
B)  $1,000 loss. 
C)  $36,000 loss. 
D)  $41,000 loss. 
A)  $4,000 gain. 
B)  $1,000 loss. 
C)  $36,000 loss. 
D)  $41,000 loss.

Question 10

An individual is considered to materially participate in an activity if any of the following tests are met with the exception of

Accepted Answer

A)  the individual participates in the activity for more than 500 hours during the year. 
B)  the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year. 
C)  the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years. 
D)  the individual's participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals. 
A)  the individual participates in the activity for more than 500 hours during the year. 
B)  the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year. 
C)  the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years. 
D)  the individual's participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals.

Question 11

Losses incurred in the sale or exchange of personal-use property are deductible as capital losses.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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

Accepted Answer

A)  $12,000 ordinary loss. 
B)  $3,000 long-term capital loss. 
C)  $3,000 short-term capital loss. 
D)  $0. 
A)  $12,000 ordinary loss. 
B)  $3,000 long-term capital loss. 
C)  $3,000 short-term capital loss. 
D)  $0.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

Martha,an accrual-method taxpayer,has an accounting practice.In 2016,she performs tax analyses for Arnold and sends him an invoice for $10,000.In 2017,Martha sells her practice and all accounts to David.Arnold's debt becomes worthless that year after David has purchased the practice.The result is

Accepted Answer

A)  Martha deducts a nonbusiness bad debt in 2017. 
B)  Martha deducts a business bad debt in 2017. 
C)  David deducts a business bad debt in 2017. 
D)  David deducts a nonbusiness bad debt in 2017. 
A)  Martha deducts a nonbusiness bad debt in 2017. 
B)  Martha deducts a business bad debt in 2017. 
C)  David deducts a business bad debt in 2017. 
D)  David deducts a nonbusiness bad debt in 2017.

Question 18

An individual taxpayer misses the deadline for filing for a quick refund (Form 1045) for an NOL carryback claim.The taxpayer has lost the opportunity to obtain a refund.

Accepted Answer

A) True 
 B)False

Question 19

An individual taxpayer has generated a net operating loss in 2017.He would like to receive a quick refund by filing a carryback claim on Form 1045.To obtain the quick refund,the taxpayer must file Form 1045 within 90 days after April 15,2018.

Accepted Answer

A) True 
 B)False

Question 20

Tom and Shawn own all of the outstanding stock of Brady Corporation (a retail store operated as a C corporation).This year,Brady generates taxable income of $20,000 from active business operations,and also reports investment interest of $22,000 and losses of $28,000 from a passive activity.As a result,Brady Corporation reports

Accepted Answer

A)  net income of $42,000. 
B)  interest income of $22,000 and a passive loss carryover of $8,000. 
C)  business income of $20,000 and a passive loss carryover of $6,000. 
D)  business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000. 
A)  net income of $42,000. 
B)  interest income of $22,000 and a passive loss carryover of $8,000. 
C)  business income of $20,000 and a passive loss carryover of $6,000. 
D)  business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000.

Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.

Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

A taxpayer uses an allowance method (i.e.aging method) of calculating bad debt expense for purposes of the business' financial statements.For income tax purposes,she will also use the allowance method to calculate the bad debt deduction.

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

Lewis died during the current year.Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000.Suspended losses of $15,000 were attributable to the property.How much of the suspended loss is deductible on Lewis's final income tax return?

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.

An individual is considered to materially participate in an activity if any of the following tests are met with the exception of

Losses incurred in the sale or exchange of personal-use property are deductible as capital 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.

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

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

Martha,an accrual-method taxpayer,has an accounting practice.In 2016,she performs tax analyses for Arnold and sends him an invoice for $10,000.In 2017,Martha sells her practice and all accounts to David.Arnold's debt becomes worthless that year after David has purchased the practice.The result is

An individual taxpayer misses the deadline for filing for a quick refund (Form 1045) for an NOL carryback claim.The taxpayer has lost the opportunity to obtain a refund.

An individual taxpayer has generated a net operating loss in 2017.He would like to receive a quick refund by filing a carryback claim on Form 1045.To obtain the quick refund,the taxpayer must file Form 1045 within 90 days after April 15,2018.

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

Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.

Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

A taxpayer uses an allowance method (i.e.aging method) of calculating bad debt expense for purposes of the business' financial statements.For income tax purposes,she will also use the allowance method to calculate the bad debt deduction.

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

Lewis died during the current year.Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000.Suspended losses of $15,000 were attributable to the property.How much of the suspended loss is deductible on Lewis's final income tax return?

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.

An individual is considered to materially participate in an activity if any of the following tests are met with the exception of

Losses incurred in the sale or exchange of personal-use property are deductible as capital 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.

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

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

Martha,an accrual-method taxpayer,has an accounting practice.In 2016,she performs tax analyses for Arnold and sends him an invoice for $10,000.In 2017,Martha sells her practice and all accounts to David.Arnold's debt becomes worthless that year after David has purchased the practice.The result is

An individual taxpayer misses the deadline for filing for a quick refund (Form 1045) for an NOL carryback claim.The taxpayer has lost the opportunity to obtain a refund.

An individual taxpayer has generated a net operating loss in 2017.He would like to receive a quick refund by filing a carryback claim on Form 1045.To obtain the quick refund,the taxpayer must file Form 1045 within 90 days after April 15,2018.

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