Exam 23: Losses and Bad Debts

Harley, a single individual, provided you with the following information for this year: Income: Salary from part-time employment \ 16,000 Interest income from savings 1,000 Net long-term capital gain from investment property 3,000 Deductions: Net business loss (sales of \ 100,000 less expenses of \ 130,000) (\ 30,000) Personal exemption (4,050) Standard deduction (6,300) Net-operating loss carryover from last year (3,000) What is the amount of Harley's net operating loss for this year?

What are some factors which indicate that a debt may be worthless?

Stacy, who is married and sole shareholder of ABC Corporation, sold all of her stock in the corporation for $100,000. Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation. ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots. The stock in ABC Corporation qualified as Sec. 1244 stock. The sale results in a(n)

Tom and Shawn own all of the outstanding stock of Brady Corporation (a retail store operated as a C corporation). This year, Brady generates taxable income of $20,000 from active business operations, and also reports investment interest of $22,000 and losses of $28,000 from a passive activity. As a result, Brady Corporation reports

Why was Section 1244 enacted by Congress? Specifically, consider and discuss some of the individual qualifying requirements of Sec. 1244.

The amount of loss realized on the sale of property is computed by subtracting adjusted basis from amount realized.

Becky, a single individual, reports the following taxable items in 2016: Gross income from business \9 3,000 Mintus: Business expenses ( \1 2,000) Interest income A G I ( \1 0,500) Itemized deductions: Interest expense \ 3,100 State Income Taxes 1,900 Casualty Total itemized deductions (8,000) Minus: Personal exemption Taxable income What is Becky's NOL for the year?

Which of the following is most likely not considered a casualty?

Why did Congress enact restrictions and limitations on losses from passive activities?

A business bad debt gives rise to an ordinary deduction while a nonbusiness bad debt is treated as a short-term capital loss.

Material participation by a taxpayer in a passive activity is satisfied if the individual participates in the activity for more than 500 hours during the year.

Jana reports the following income and loss: Salary \ 120,000 Income from activity A 60,000 Loss from activity B (30,000) Loss from activity C (70,000) Activities A, B, and C are all passive activities. Based on this information, Jana will recognize

A loss on business or investment property which is abandoned is deductible as an ordinary loss to the extent of the property's adjusted basis on the date of abandonment.

If a loan has been made to a related party, what are some considerations for determining whether the loan is a bona fide debt or is, in fact, merely a gift?

A net operating loss can be carried back three years or carried forward five years.

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

Individuals who actively participate in the management of rental real property may deduct up to $25,000 in losses, subject to AGI limitations.

In February 2016, Amelia's home, which originally cost $150,000, is damaged by a windstorm. Amelia had refinanced the home shortly before the storm, and it was appraised at $200,000. After the storm, the home appraised at $120,000. Amelia has received no insurance reimbursement by December 31, but expects to recover 90 percent of the loss. In the subsequent year, the insurance company pays Amelia $50,000. Amelia's AGI is $85,000 in 2016, and her 2017 AGI is $80,000. Amelia suffers no other casualty losses in either year. Amelia may deduct

Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 loan to the supplier. Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera. Vera will be able to recognize a loss of

Due to an unusual event, a taxpayer has a large loss in the current year, resulting in an NOL. The taxpayer expects next year's taxable income to return to the same approximate amount he reported in last few years, however he expects his income tax rate to increase after this year's election. The taxpayer should elect to forego the carryback period.