When would an account receivable give rise to a bad debt deduction?
When the account receivable was previously included in gross income.
Ron, a cash basis taxpayer, sells his business accounts receivable of $100,000 to Felicia for $70,000 (70% of the actual accounts receivable). What is the amount and classification of Ron's bad debt deduction?
Ron has ___debt deduction because he is a cas
no bad, 70,000, income
Answer the following regarding the bad debt deduction.
a. When can a bad debt deduction be taken for a nonbusiness debt?
b. How is a nonbusiness bad debt classified?
a. In the year of total worthlessness
b. Short-term capital loss
Complete the following regarding the treatment of a business bad debt when the business also has long-term capital gains.
The business bad debt is treated as ___, hence, the long-term capital gains are ___.
an ordinary loss, not relevant in determining the net loss
Many years ago, Jack purchased 400 shares of Canary stock. During the current year, the stock became worthless. It was determined that the company "went under" because several corporate officers embezzled a large amount of company funds.
Identify which of
a. Not an issue
b. Yes, an issue
c. Yes, an issue
d. Yes, an issue
e. Yes, an issue
Sean is in the business of buying and selling stocks and bonds. He has a bond of Green Corporation for which he paid $200,000. The bond is currently worth only $50,000. Can Sean take a $150,000 loss for a business bad debt or for a worthless security?
Sea
cannot, cannot, only when the security is completely worthless
How are gains from the sale of � 1244 stock treated?
Gains on the sale of � 1244 stock are treated as ___.
a capital gain
Jim discovers that his residence has extensive termite damage. May he take a deduction for the damage to his residence?
__, because the current position of ___ is that termite damage ___ deductible as a casualty loss. Generally, ___ qualify as casualties.
No, the IRS, is not, nonsudden events do not, only allowed if the loss occurs in a Federally declared disaster area
The value of Terrah's personal residence has declined significantly because of a recent forest fire in the area where she lives. The fire was a Federally declared disaster. Terrah's house suffered no actual damage during the fire, but because much of the
No, does not
In 2018, Kelsey sustained a loss on the theft of a painting. She had paid $20,000 for the painting, but it was worth $40,000 at the time of the theft.
a. If the painting is treated as investment property, the loss is ___. Before adjustments (if any), the
a. an itemized deduction not subject to the $100-per-event and the 10%-of-AGI limitations, adjusted basis
b. a casualty and theft loss but not deductible since not related to a Federally declared disaster area, lesser of decline in fair market value or th
During the past tax year, Aleshia identified $15,000 as a nonbusiness bad debt. In that tax year, Aleshia had $100,000 of taxable income, of which $12,000 consisted of short-term capital gains. During the current tax year, Aleshia collected $8,000 of the
$8,000, ordinary income
Bob owns a collection agency. He purchases uncollected accounts receivable from other businesses at 60% of their face value and then attempts to collect these accounts. During the current year, Bob collected $60,000 on an account with a face value of $80,
no bad, income, $12,000
Compute the following regarding business and nonbusiness bad debts.
On May 9, 2016, Calvin acquired 250 shares of stock in Aero Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Aero, and it is classified as � 1244 s
$50,000
$0
$11,750
Calvin's total loss of $61,750 ($68,750 - $7,000) is treated as follows: $50,000 is ordinary loss and the remaining $11,750 is long-term capital loss.
Noelle's diamond ring was stolen in 2017. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Noelle filed an insurance claim for the stolen ring, but the claim was denied. Because the insurance claim was
include as income in 2018, $3900 [8,000 - 100 - (10% x 40,000 = 4,000)]
Determine the treatment of a loss on rental property under the following facts:
Basis $650,000
FMV before the loss 800,000
FMV after the loss 200,000
The amount of the loss is $
600,000 (800,000-200,000) which is less than $650,000
Belinda was involved in a boating accident in 2018. Her speedboat, which was used only for personal use and had a fair market value of $28,000 and an adjusted basis of $14,000, was completely destroyed. She received $10,000 from her insurance company. Her
4,000, Only to the extent the loss can offset other personal casualty gains.
During the year, Tucker had the following personal casualty gains and losses (after deducting the $100 floor):
Asset Holding Period Gain/(Loss)
Asset 1 18 months ($1,200)
Asset 2 2 months 750
Asset 3 3 years 1,500
As a result of these transactions, Tucker
gain, 1,050, capital
Sandstorm Corporation decides to develop a new line of paints. The project begins in 2018. Sandstorm incurs the following expenses in 2018 in connection with the project:
Salaries $85,000
Materials 30,000
Depreciation on equipment 12,500
The benefits from
$0, $12,750
Since the benefits from the project will be realized starting in July 2019, Sandstorm Corporation has no deduction prior to July 2019, the month benefits from the project begin to be realized. The deduction for 2019 is $12,750, computed as fol
A father cannot claim a loss on his daughter's rental use property.
True
Research and experimental expenditures do not include the cost of consumer surveys.
True
A taxpayer can carry back any NOL incurred 2 years and then forward up to 20 years.
False
A theft of investment property can create or increase a net operating loss for an individual.
True
A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.
False
A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss.
True
In 2018, personal casualty gains are allowed to offset personal casualty losses. If an excess casualty loss results, it is not deductible (unless attributable to a Federally-declared disaster).
True
A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.
False
The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.
False
The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.
False
A loss is not allowed for a security that declines in value.
True
If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than it's adjusted basis, a gain is recognized.
False
The amount of loss for partial destruction of business property is the decline in fair market value of the business property.
False
In determining whether a debt is a business or nonbusiness bad debt, the debtor's use of the borrowed funds is important.
False
Losses on rental property are classified as deductions for AGI.
True
The excess business loss rule applies to partnerships and S corporations (rather than partners and shareholders).
False
If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year.
True
Al, who is single, has a gain of $40,000 on the sale of � 1244 stock (small business stock) and a loss of $80,000 on the sale of � 1244 stock. As a result, Al has a $40,000 ordinary loss.
False
A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.
True
Other casualty" means casualties similar to those associated with fires, storms, or shipwrecks.
True
Individual deductions must be properly classified as either for adjusted gross income (AGI) or from AGI (itemized deductions). Business expenses and losses, along with expenses and losses related to rent and royalty activities (entered into for profit), a
True
Complete the following statements regarding business and nonbusiness bad debts.
A ___ bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless. The use to which the borrowed funds are put by t
nonbusiness, is of no consequence, business, nonbusiness, nonbusiness, are not
a. If a taxpayer sells goods or provides services on credit and the account receivable subsequently becomes worthless, a bad debt deduction is permitted only if income arising from the creation of the account receivable was previously included in income.
a. True
b. False
c. False
d. True
e. True
Complete the following statements regarding business and nonbusiness bad debts.
Lulu is a calendar year taxpayer. She owned stock in Kasper Corporation (a publicly held company). Lulu acquired the stock as an investment on November 1, 2017, at a cost of $
December 31, 2018, a long-term capital loss
If business property or property held for the production of income is ___ destroyed, the loss is equal to the adjusted basis of the property at the time of destruction. The ___ destruction of business property and income-producing property and for ___ des
completely, partial, complete or partial, lesser, adjusted basis, fair market value, fair market value
Last year, Aleshia identified $16,400 as a nonbusiness bad debt. In that tax year before considering the tax implications of the nonbusiness bad debt, Aleshia had $32,800 of taxable income, of which $3,280 consisted of short-term capital gains. This year,
$3,936, ordinary income
Tim, a single taxpayer, operates a business as a single-member LLC. In 2018, his LLC reports business income of $410,500 and business deductions of $718,375, resulting in a loss of $307,875. What are the implications of this business loss?
Tim has an exce
$57,875
$250,000, nonbusiness income, treated as part of Tim's NOL carryforward
Monty loaned his friend Ned $12,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $9,000, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Mon
short-term capital loss, $6,600 ($3,600 capital gain + $3,000 max gain)
Gertrude, who is single, has the following items for the current year:
Salary .
$230,000
Gain on sale of � 1244 stock acquired five years ago
$40,000
Loss on sale of � 1244 stock acquired nine months ago
($60,000)
Nonbusiness bad debt ($15,000)
Business b
$175,000
Samuel, who is single, files head of household and has the following items for the current year:
Salary
$98,000
Loss on sale of � 1244 stock acquired three years ago
36,000
Gain on sale of � 1244 stock acquired one month ago
10,000
Nonbusiness bad debt 30
Determine his AGI for the current year.
$54,000
On February 20, 2017, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2018, the stock became worthless. During 2018, Bill also had an $8,000 loss on � 1244 small business stock purchased two years ago
$8,000 ordinary loss and $3,000 short-term capital loss
Ordinary loss (small business stock) ($8,000)
Long-term capital gain $5,000
- long-term capital loss (worthless securities)
(1,000)
Net long-term capital gain $4,000
- short-term capital loss (nonbus
In 2018, Mary had the following items:
Salary $30,000
Personal use casualty gain 10,000
Personal use casualty loss (after $100 floor) 17,000
Other itemized deductions 4,000
Assuming that Mary files as head of household (has one dependent child), determine
Salary $30,000
Personal use casualty gains in excess of personal use casualty losses ($10,000 - $10,000) $0
Adjusted gross income $30,000
Less: Deductions
Itemized deductions
Casualty loss (not allowed; not in
Federally-declared disaster area) $0
Other it
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 stoc
$27,000
Salary $80,000
� 1244 ordinary loss (50,000)
Long-term capital gain $20,000
Long-term capital loss
Excess � 1244 loss
($75,000 - $50,000) $25,000
Worthless security 15,000
(40,000)
Net long-term capital loss (limited) (3,000)
Adjusted gross income
On June 2, 2017, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000. Fred's TV Sales uses the accrual method. In 2018, when the balance on the account was $8,000, Mark filed for bankruptcy. Fred was notified that he could not expect to recei
$0
This debt is a business debt. Therefore, partial worthlessness can be recognized in 2018. The loss in 2018 would be $8,000. In 2019, the account has been written down to zero and hence, the collection of $1,000 would produce a $1,000 ($1,000 - $0) gain
Three years ago, Sharon loaned her sister $30,000 to buy a car. A note was issued for the loan with the provision for monthly payments of principal and interest. Last year, Sharon purchased a car from the same dealer, Hank's Auto. As partial payment for t
$15,500