Question 1

Kayla reported the following amounts in her 2017 tax return:

Kayla has generated an NOL of

Accepted Answer

A)  $0. 
B)  ($24,350). 
C)  ($14,000). 
D)  ($20,000).

Question 2

A taxpayer incurs a net operating loss in the current year.With respect to the application of the NOL,

Accepted Answer

A)  the taxpayer will carry back the NOL three years first, then carry forward any balance for five years. 
B)  the taxpayer must carry forward the loss and has up to 20 years to use it. 
C)  the taxpayer can carry forward the loss indefinitely until there is sufficient taxable income to use it up. 
D)  the taxpayer will first carry back the NOL for two years, then carry forward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.

Question 3

When personal-use property is covered by insurance,no deduction is available for a casualty loss of the property unless the taxpayer timely files an insurance claim for the loss.

Accepted Answer

A) True 
 B)False

Question 4

Jeff owned one passive activity.Jeff sold the activity and realized a $2,000 gain on the sale.Prior to the sale,he realized a current year loss from the activity of $6,000.In addition,he has suspended losses from prior years of $7,000.What is the net impact on Jeff's AGI this year due to the passive activity?

Accepted Answer

A)  increase of $2,000 
B)  no net change 
C)  decrease of $4,000 
D)  decrease of $11,000

Question 5

For purposes of applying the passive loss limitations for rental real estate,active participation requires a greater time commitment by the taxpayer than does material participation.

Accepted Answer

A) True 
 B)False

Question 6

When the taxpayer anticipates a full recovery on a casualty loss of personal-use property but receives less than full recovery in a subsequent year,the unrecovered portion may be deducted.

Accepted Answer

A) True 
 B)False

Question 7

Harley,a single individual,provided you with the following information for this year:
Income:
  
Deductions:
  
What is the amount of Harley's net operating loss for this year?

Accepted Answer

The answer of Harley,a single individual,provided you with the following...

Question 8

Jen and Saachi are the owners of J&S Legal Services,P.C.,an incorporated law firm treated as a C corporation for tax purposes.Jen and Saachi work full-time in the firm,performing all of the legal services.This year,J&S generates taxable income of $100,000 from the active business operations,and also reports investment interest income of $22,000 and losses of $28,000 from a passive activity.As a result,J&S Legal Services,P.C.reports taxable income of

Accepted Answer

A)  $122,000. 
B)  $100,000. 
C)  $94,000. 
D)  $97,000.

Question 9

Partnerships and S corporations must classify their business and rental activities by applying the passive activity rules at the partnership or S corporation level and then must report the results of their operations by activity to the partners or shareholders.

Accepted Answer

A) True 
 B)False

Question 10

Joy reports the following income and loss:

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

Accepted Answer

A)   
B)   
C)   
D)

Question 11

Which of the following expenses or losses could create a net operating loss for an individual taxpayer?

Accepted Answer

A)  large losses on sales of investment assets 
B)  an operating loss from a sole proprietorship 
C)  large charitable contributions 
D)  all of the above

Question 12

A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.

Accepted Answer

A) True 
 B)False

Question 13

Wesley completely demolished his personal automobile in a car accident.Damage to the auto was estimated at $35,000.Wesley had purchased the car a few years ago for $60,000.He received an insurance reimbursement of $28,000.His adjusted gross income this year was $55,000 and he incurred no other losses during the year.What amount can he deduct as a casualty loss on his income tax return after limitations?

Accepted Answer

A)  $1,400 
B)  $1,500 
C)  $6,900 
D)  $7,000

Question 14

The total worthlessness of a security generally results in an ordinary loss.

Accepted Answer

A) True 
 B)False

Question 15

In 2016,Grace loaned her friend Paula $12,000 to invest in various stocks.Paula signed a note to repay the principal with interest.Unfortunately the market for that industry sector plunged,and Paula incurred large losses.In 2017,Paula declared personal bankruptcy and Grace was unable to collect any of her loan.Grace had no other gains or losses last year or this year.The result is

Accepted Answer

A)  Grace deducts a business bad debt of $12,000 in 2017. 
B)  Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2017. 
C)  Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2017 and carries $9,000 over to subsequent years. 
D)  Grace deducts a business bad debt of $3,000 in 2017 and carries $9,000 over to subsequent years.

Question 16

A taxpayer has generated a net operating loss in the current year and is weighing whether to carry back the NOL or elect to carry forward the NOL.The factors to consider in making this decision include all of the following except

Accepted Answer

A)  marginal tax rates in the relevant years. 
B)  tax credits available in the carryback years. 
C)  time value of money. 
D)  refundable tax credits expected in future years.

Question 17

A net operating loss (NOL) occurs when taxable income for any year is negative because itemized deductions and total exemptions exceed business income.

Accepted Answer

A) True 
 B)False

Question 18

When applying the limitations of the passive activity rules,a taxpayer's AGI is classified into active income,portfolio income and passive income.For this purpose,portfolio income includes dividends,interest,annuities,and royalties.

Accepted Answer

A) True 
 B)False

Question 19

Taxpayers are allowed to recognize net passive losses from all activities up to a ceiling of $25,000.

Accepted Answer

A) True 
 B)False

Question 20

A taxpayer has low AGI this year,but unusually high itemized deductions.The one itemized deduction that is allowed to increase the NOL is

Accepted Answer

A)  state and local income and property taxes. 
B)  home mortgage interest. 
C)  medical expenses. 
D)  casualty loss on personal-use assets.

Exam 8: Losses and Bad Debts

Kayla reported the following amounts in her 2017 tax return: Kayla has generated an NOL of

A taxpayer incurs a net operating loss in the current year.With respect to the application of the NOL,

When personal-use property is covered by insurance,no deduction is available for a casualty loss of the property unless the taxpayer timely files an insurance claim for the loss.

For purposes of applying the passive loss limitations for rental real estate,active participation requires a greater time commitment by the taxpayer than does material participation.

When the taxpayer anticipates a full recovery on a casualty loss of personal-use property but receives less than full recovery in a subsequent year,the unrecovered portion may be deducted.

Harley,a single individual,provided you with the following information for this year: Income: Deductions: What is the amount of Harley's net operating loss for this year?

Partnerships and S corporations must classify their business and rental activities by applying the passive activity rules at the partnership or S corporation level and then must report the results of their operations by activity to the partners or shareholders.

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

Which of the following expenses or losses could create a net operating loss for an individual taxpayer?

A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.

The total worthlessness of a security generally results in an ordinary loss.

A taxpayer has generated a net operating loss in the current year and is weighing whether to carry back the NOL or elect to carry forward the NOL.The factors to consider in making this decision include all of the following except

A net operating loss (NOL) occurs when taxable income for any year is negative because itemized deductions and total exemptions exceed business income.

When applying the limitations of the passive activity rules,a taxpayer's AGI is classified into active income,portfolio income and passive income.For this purpose,portfolio income includes dividends,interest,annuities,and royalties.

Taxpayers are allowed to recognize net passive losses from all activities up to a ceiling of $25,000.

A taxpayer has low AGI this year,but unusually high itemized deductions.The one itemized deduction that is allowed to increase the NOL is