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

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Question 51

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How is qualified production activities income (QPAI) calculated?

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QPAI is calculated as follows:The excess...

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Question 52

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Jim had a car accident in 2015 in which his car was completely destroyed.At the time of the accident,the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for business use.Jim received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000,determine his deductible loss on the car.

A) $900
B) $2,900
C) $3,000
D) $9,000
E) None of the above

F) All of the above
G) A) and B)

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Question 53

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If investment property is stolen,the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

In 2015,Morley,a single taxpayer,had an AGI of $30,000 before considering the following items: Loss from damage to rental property ($6,000) Loss from theft of bonds (3,000) Personal casualty gain 4,000 Personal casualty loss (after $100 floor) (9,000) ​ Determine the amount of Morley's itemized deduction from the losses.

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

Losses on rental property are classified as deductions for AGI.

In 2015,Wally had the following insured personal casualty losses (arising from one casualty) .Wally also had $42,000 AGI for the year before considering the casualty. Fair Market Value ​ Asset Adjusted Basis Before After Insurance Recovery A $9,200 $8,000 $1,000 $2,000 B 3,000 4,000 -0- 4,000 C 3,700 1,700 -0- 900 Wally's casualty loss deduction is:

While Susan was on vacation during the current year,someone broke into her home and stole the following items: ∙ A computer used 60% in connection with Susan's employment as an employee and 40% for her personal use.The cost of the computer was $8,000.Depreciation of $3,000 had been taken on the computer and it had a fair market value of $4,000 at the time of the theft. ∙ A painting,which Susan purchased as an investment for $10,000,had a fair market value of $17,000. ∙ Silverware purchased for $3,000 had a fair market value of $5,000. ∙ Cash of $30,000. ​ Susan's adjusted gross income,before considering any of the above items,is $60,000. Determine the total amount of Susan's itemized deductions resulting from the theft.

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

The limit for the domestic production activities deduction (DPAD) uses all W-2 wages paid to employees by the taxpayer during the tax year.

Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.

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

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.

Maria,who is single,had the following items for 2015: Salary $80,000 Loss on sale of § 1244 small business stock acquired 3 years ago (60,000) Stock acquired 2 years ago became worthless during the year (5,000) Long-term capital gain 25,000 Nonbusiness bad debt (15,000) Casualty loss on property held 6 months (6,000) Casualty gain on property held 4 years 4,000 Determine Maria's adjusted gross income for 2015.

When a nonbusiness casualty loss is spread between two taxable years,the loss in the second year is reduced by 10% of adjusted gross income for the first year.