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

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Question 61

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If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

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B) False

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Question 62

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Discuss the tax treatment of nonreimbursed losses of an employee in connection with a trade or business.

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The loss is a miscel...

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Question 63

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A father cannot claim a loss on his daughter's rental use property.

Nora, single, reports the following income and deductions for 2019: $\begin{array}{lc}\text { Sales } & \$ 50,000 \\\text { Business expenses } & (100,000) \text { Alimony received } \\& 30,000\\\text { Interest income } & 1,000 \\\text { Dividends } & 2,000 \\\text { Nonbusiness capital gains } & 4,000\end{array}$ $\S \quad 1244$ stock loss (18,000) Itemized deductions (4,000) Business capital loss (2,000) Business capital gain 1,000 Compute Nora's net operating loss for 2019.

Bruce, who is single, had the following items for the current year: ∙ Salary of $80,000. ∙ Gain of $20,000 on the sale of § 1244 stock acquired two years earlier. ∙ Loss of $75,000 on the sale of § 1244 stock acquired three years earlier. ∙ Worthless stock of $15,000. The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year. Determine Bruce's AGI for the current year.

In 2019, Cindy is married and files a joint return. She operates a sole proprietorship in which she materially participates. Her proprietorship generates gross income of $225,000 and deductions of $525,000, resulting in a loss of $300,000. What is Cindy's excess business loss for the year?

Mike, single, age 31, reports the following items for 2019: $\begin{array}{lr}\text { Salary } & \$ 50,000 \\\text { Nonbusiness bad debt } & (6,000) \\\text { Casualty } &\\\text { Asset A (personal use property held for two years)gain } & 3,000 \\\text { Dividends } & 2,000 \\\text { Interest expense on personal residence } & 10,000\\\text { Compute Mike's taxable income for } 2019 .\\\end{array}$

A theft of investment property can create or increase a net operating loss for an individual.

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

The cost of depreciable property is not a research and experimental expenditure.

The excess of nonbusiness capital gains over nonbusiness capital losses must be added to taxable income to compute an individual's net operating loss.

A reimbursed employee business expense cannot create a NOL for an individual.

Steve and Holly report the following items for 2019: $\begin{array}{lc}\text { Dividend income } & \$ 16,000 \\\text { Interest income } & 14,000 \\\text { Itemized deductions (none of the amount resulted from a casualty loss) } & (26,000) \text { Business } \\\text { capital gains } & 2,000 \\\text { Business capital losses } & (10,000) \end{array}$ In calculating their net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss) ?

Elizabeth reports the following items for the current year: $\begin{array}{lr}\text { Nonbusiness capital gains }&\$5,000\\\text { Nonbusiness capital losses } & (3,000) \\\text { Interest income } & 3,000\end{array}$ (27,000) In calculating Elizabeth's net operating loss and with respect to these amounts only, what amount must be added back to taxable income (loss) ?

On September 3, 2018, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000. On December 31, 2018, the stock was worth $85,000. On August 15, 2019, Able was notified that the stock was worthless. How should Able report this item on his 2019 tax return?

In 2019, Grant's personal residence was completely destroyed by fire. He was insured for 100% 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: $\begin{array}{lr}\text { Cost basis } & \$ 280,000 \\\text { Value before casualty } & 250,000 \\\text { Value after casualty } & -0-\end{array}$ What is Grant's allowable casualty loss deduction?