Exam 7: Deductions and Losses: Certain Business Expenses and Losses

Taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area. If the taxpayer elects to treat the loss as having occurred in the prior year, it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.

A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a bad debt.

Identify the factors that should be considered in determining whether a transaction is a bona fide loan or a gift.

If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than it's adjusted basis, a gain is recognized.

In 2012, Mary had the following items: Assuming that Mary files as head of household (has one dependent child), determine her taxable income for the current year.

Alma is in the business of dairy farming.During the year, one of her barns was completely destroyed by fire.The adjusted basis of the barn was $90,000.The fair market value of the barn before the fire was $75,000.The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy.Alma has adjusted gross income for the year of $40,000 (before considering the casualty).Determine the amount of loss she can deduct on her tax return for the current year.

Green, Inc., manufactures and sells widgets. During 2012, an examination of the company records showed the following items: Determine Green's domestic production activities deduction for 2012.

Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income.

A business bad debt can offset an unlimited amount of ordinary income.

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

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

A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.

In 2012, Grant's personal residence was damaged by fire.Grant was insured for 90% of his actual loss, and he received the insurance settlement.Grant had adjusted gross income, before considering the casualty item, of $30,000.Pertinent data with respect to the residence follows: What is Grant's allowable casualty loss deduction?

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.

Three years ago, Sharon loaned her sister $30,000 to buy a car.A note was issued for the loan with the provision for monthly payments of principal and interest.Last year, Sharon purchased a car from the same dealer, Hank's Auto.As partial payment for the car, the dealer accepted the note from Sharon's sister.At the time Sharon purchased the car, the note had a balance of $18,000.During the current year, Sharon's sister died.Hank's Auto was notified that no further payments on the note would be received.At the time of the notification, the note had a balance due of $15,500.What is the amount of loss, with respect to the note, that Hank's Auto may claim on the current year tax return?

Blue Corporation incurred the following expenses in connection with the development of a new product: Blue expects to begin selling the product next year. If Blue elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.

If personal casualty losses (after deducting the $100 floor) exceed personal casualty gains in 2012, the itemized deduction is always equal to the losses, to the extent they exceed 10% of adjusted gross income.