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

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Question 31

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John had adjusted gross income of $60,000.During the year his personal use summer home was damaged by a fire.Pertinent data with respect to the home follows: John had an accident with his personal use car.As a result of the accident, John was cited with reckless driving and willful negligence.Pertinent data with respect to the car follows: What is John's itemized casualty loss deduction?

A) $0.
B) $2,000.
C) $17,000.
D) $18,000.
E) None of the above.

F) A) and B)
G) A) and C)

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Question 32

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A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.

A) True
B) False

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Question 33

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In determining whether a debt is a business or nonbusiness bad debt, the debtor's use of the borrowed funds is not important.

For tax years beginning in 2012, the domestic production activities deduction (DPAD) for a sole proprietor is calculated by multiplying 9% times adjusted gross income.

How is qualified production activities income (QPAI) calculated?

Neal, single and age 37, has the following items for 2012: Determine Neal's taxable income for 2012.

A father cannot claim a casualty on his daughter's personal use property.

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

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.

Discuss the treatment, including the carryback and carryforward periods, of casualty losses incurred with personal use property.

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

A theft loss is taken in the year the theft is discovered.

A taxpayer may carry any NOL incurred back two years.

If rental property is completely destroyed, the amount of the loss is the adjusted basis of the property at the time of the destruction reduced by $100 and 10% of AGI.

The domestic production activities deduction (DPAD) for 2012 cannot exceed 50% of all W-2 wages paid to employees by the taxpayer during the tax year.

Ivory, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $700,000 in 2012.Ivory's domestic production activities deduction is:

An unreimbursed employee business expense can create an NOL for an individual.

If qualified production activities income (QPAI) cannot be used in the calculation of the domestic production activities deduction in 2012 because of the taxable income limitation, the product of the amount not allowed multiplied by 9% can be carried over for 5 years.

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.

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.