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

In 2018, Mary had the following items: Assuming that Mary files as head of household (has one dependent child), determine her taxable income for 2018.

In 2017, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home. Sarah's insurance company told her that her policy did not cover the theft. Sarah's other itemized deductions last year were $2,000. She had AGI of $30,000 last year. In August of 2018, Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000. Determine the tax treatment of the $5,000 received by Sarah during 2018.

Maria, who is single, had the following items for 2018: Determine Maria's adjusted gross income for 2018.

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?

If an election is made to defer deduction of research expenditures, the amortization period is based on the expected life of the research project if less than 60 months.

In the current year, Juan's home was burglarized. Juan had the following items stolen: ? Securities worth $25,000. Juan purchased the securities four years ago for $20,000. ? New tools which Juan had purchased two weeks earlier for $8,000. Juan uses the tools in making repairs at an apartment house that he owns and manages. ? An antique worth $15,000. Juan inherited the antique (a family keepsake) when the property was worth $11,000. Juan's homeowner's policy had a $50,000 deductible clause for thefts. If Juan's salary for the year is $50,000, determine the amount of his itemized deductions as a result of the theft.

On July 20, 2017, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is §1244 small business stock) for $24,000. On November 10, 2017, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000. On September 15, 2018, Matt sold the 4,000 shares of stock for $120,000. How should Matt treat the sale of the stock on his 2018 return?

Last year, Green Corporation incurred the following expenditures in the development of a new plant process: During the current year, benefits from the project began being realized in May. If Green Corporation elects a 60 month deferral and amortization period, determine the amount of the deduction 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.

A net operating loss occurring in 2018 can only be carried forward (no carryback exists).

Jose, single, had the following items for 2018: Compute Jose's adjusted gross income for 2018.

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

Sally is an employee of Blue Corporation. Last year, she purchased a very expensive computer with her own funds. She used the computer 100% for business purposes. During the current year, the computer was completely destroyed in a fire. Blue Corporation did not reimburse her for her loss. Discuss whether Sally's loss will create or increase Sally's net operating loss.

Two years ago, Gina loaned Tom $50,000. Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance. Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note. As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000. As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt. Last year, Gina had AGI of $50,000 which included $16,000 of net long-term capital gains. Gina did not itemize her deductions. During the current year, Tom paid Gina $13,000 in final settlement of the loan. How should Gina account for the payment in the current year?

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.

On June 2, 2017, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000. Fred's TV Sales uses the accrual method. In 2018, when the balance on the account was $8,000, Mark filed for bankruptcy. Fred was notified that he could not expect to receive any of the amount owed to him. In 2019, final settlement was made and Fred received $1,000. How much bad debt loss can Fred deduct in 2019?

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.

Al, who is single, has a gain of $40,000 on the sale of § 1244 stock (small business stock) and a loss of $80,000 on the sale of § 1244 stock. As a result, Al has a $40,000 ordinary loss.

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

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.