Exam 8: Losses and Bad Debts

Stacy,who is married and sole shareholder of ABC Corporation,sold all of her stock in the corporation for $100,000.Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation.ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots.The stock in ABC Corporation qualified as Sec.1244 stock.The sale results in a(n)

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

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.

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?

Which of the following is not generally classified as a passive activity?

When business property involved in a casualty is totally destroyed,the amount of the loss is limited to the lesser of the taxpayer's adjusted basis in the property or the reduction in FMV.

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

What must an individual taxpayer prove to receive a worthless security deduction?

Which of the following is most likely not considered a casualty?

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.

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

Jamie sells investment real estate for $80,000,resulting in a $15,000 loss.Jamie's loss is

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

Distinguish between the accrual-method taxpayer and the cash-method taxpayer with regard to basis in a receivable.

Material participation by a taxpayer in a passive activity is satisfied if the individual participates in the activity for more than 500 hours during the year.

The destruction of a capital asset due to a casualty will result in recognition of an ordinary loss.

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

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?

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

A taxpayer's home is destroyed by fire,resulting in a large casualty loss deduction exceeding the taxpayer's income.The taxpayer will be allowed to carry back and then carry forward a net operating loss due to this personal loss.