Herman, who is single, has a gain of $30,000 on the sale of �1244 stock (small business stock) and a loss of $70,000 on the sale of � 1244 stock. As a result, Herman has a $40,000 ordinary loss.
a.True
b. False
b. False
The section 1244 gain is not netted against the Section 1244 loss. The $30,000 gain on the sale of the � 1244 stock is classified as a capital gain. The $70,000 loss on the sale of the � 1244 stock is classified as an ordinary loss to the extent
If a bad debt arose from the sale of a product, the bad debt deduction is limited to the sales amount included in income.
a. True
b. False
a. True
Trade or business casualty losses, as well as personal casualty losses, may create or increase a net operating loss for an individual.
a. True
b. False
a. True
The depreciation on buildings used in a research activity qualifies as a research and experimental expenditure.
a. True
b. False
a. True
Only depreciation on a building used for research can be a research and experimental expenditure.
For tax years beginning in 2014, the production activities deduction (PAD) is calculated by multiplying 9% times the greater of (1) qualified production activities income (QPAI) or (2) taxable (after application of NOL deduction) income or alternative min
b. False
It is 9% times the lesser of QPAI or taxable income.
On May 1, 2012, Lemon Loan Company loaned Howard $50,000. In 2013, Howard filed for bankruptcy. At that time, it was revealed that Howard's creditors could expect to receive 40 cents on the dollar. In March 2014, final settlement was made, and Lemon recei
c. 2013�$30,000; 2014�$15,000.
This debt was incurred in connection with a trade or business. Therefore, Lemon can claim a bad debt deduction in the following years:
2012�zero.
2013�$30,000 [$50,000 (loan) - $20,000 (expected settlement)].
2014�$15,000 [$
Konnor loaned Melville (a friend) $50,000 in 2013 to help him start a business with the agreement that the loan would be repaid in two years. In 2014, Melville filed for bankruptcy and Konnor learned that he could expect to receive $0.40 on the dollar. In
c. $45,000 short-term capital loss in 2015.
Nonbusiness bad debts are characterized as short-term capital losses. The loss of $45,000 is recognized in the year of final settlement.
On January 10, 2013, Ivory Corporation purchased stock in Ebony Corporation (the stock is � 1244 small business stock) for $75,000. On October 15, 2014, Ivory sold the stock for $15,000. How should Ivory treat the loss on the sale of the stock?
a. $60,000
c. $60,000 long-term capital loss.
Section 1244 ordinary loss treatment applies only to individuals. The term "individual" for this purpose includes partnerships.
Cameron had adjusted gross income of $75,000. During 2014, his personal use summer home was partially destroyed by a fire. Pertinent data with respect to the home follows:
Cost basis $175,000
Value before casualty $265,000
Value after casualty $185,000
Ca
d. $24,400
Casualty loss [$80,000 - (60% X $80,000)] $32,000
Less: Statutory floor per event (100)
Less: AGI limitation (10% X $75,000) (7,500)
Casualty loss deduction $24,400
Khaki Corporation incurred the following expenditures in connection with the development of a new product:
Salaries $ 80,000
Materials $ 40,000
Quality Control testing $ 20,000
Efficiency survey $ 24,000
Depreciation on research equipment $15,000
If Khaki
c. $135,000. ($80,000 salaries + $40,000 materials + $15,000 depreciation).
Gold, Inc.'s taxable income for 2014 before any deduction for an NOL carryforward of $30,000 is $70,000. Gold's qualified production activities income (QPAI) is $60,000. What is the amount of Gold's domestic production activities deduction (DPAD) for 2014
c. $3,600
Silver, Inc., has taxable income of $600,000 and qualified production activities income (QPAI) of $400,000 in 2014. Silver's domestic production activities deduction is:
a. $36,000
b. $40,000
c. $54,000
d. $24,000
e. None of these choices are correct.
a. $36,000 ($400,000 * 9%)
Research and experimental expenditures include expenditures for testing of materials for quality control.
a. True
b. False
b. False
Platinum Corporation incurred the following expenses in connection with the development of a new product:
Salaries: $100,000
Utilities: 18,000
Materials: 25,000
Advertising: 5,000
Market Survey: 3,000
Depreciation on machine: 9,000
Platinum expects to beg
c. $152,000 (Salaries $100,000+Utilities 18,000+Materials 25,000+Depreciation 9,000)
In 2014, Woodrow had a salary of $30,000 and experienced the following losses:
Loss from damage to rental property: ($10,000)
Loss from theft of securities: (5,000)
Personal casualty gain: 4,000
Personal casualty loss (after $100 floor): (3,000)
Determine
e. None of these choices are correct.
Salary: $30,000
Rental loss: (20,000)
Personal casualty gain: 4,000
Personal casualty loss: (3,000) 1,000
AGI = $21,000
The securities are property held for the production of income, but not attributable to rents or r
Which of the following events would produce a deductible loss?
a. Termite infestation of a personal residence over a several year period.
b. Damages to personal automobile resulting from a taxpayer's willful negligence.
c. Damage to landscaping around a p
e. None of these choices are correct.
In the computation of a net operating loss, which of the following items is added to the negative taxable income?
a. Personal casualty loss.
b. Personal theft loss.
c. Losses incurred in a transaction entered into for profit.
d. All of these choices are c
e. None of these choices are correct.
Julius is an electrician. Julius and his wife are cash basis taxpayers and file a joint return. Julius wired a new house for Coreen and billed her $15,000. Coreen paid Julius $10,000 and refused to pay the remainder of the bill, claiming the fee to be exo
d. $0
Julius is a cash basis taxpayer and therefore, has no basis in the $5,000 not collected.
On September 3, 2013, Willie purchased � 1244 stock in Brass Corporation for $6,000. On December 31, 2013, the stock was worth $8,500. On August 15, 2014, Willie was notified that the stock was worthless. How should Willie report this item on his 2013 and
d. 2013�$0; 2014�$6,000 ordinary loss.
The cost of repairs to damaged property is not acceptable as a measure of the loss in value of the property.
a. True
b. False
b. False
Seth had a car accident in 2014 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. Seth used the car 100% of the time for personal use. Seth received an insu
d. $900
Cory, who is single, has the following items for 2013:
Salary: $25,000
Interest income: 600
Itemized deductions (27,000 attributable to casualty loss): (32,000)
What is Cory's NOL for 2013?
a. $1,000
b. $2,000
c. $25,000
d. $0
e. None of these choices are
a. $1,000
$32,000-25,000-600
Copper Corporation incurred a $12,000 bad debt last year. Copper Corporation also had an $8,000 long-term capital gain last year. Copper's taxable income for last year was $28,000. During the current year, Copper Corporation, unexpectedly, collected $5,00
c. $5,000 income.
An individual may not deduct a loss on rental property unless it meets the definition of a casualty loss.
a. True
b. False
b. False
Only an individual's loss on personal use property must meet the definition of a casualty to be deductible.
On February 20, 2013, Lonnie purchased stock in Alloy Corporation (the stock is not small business stock) for $1,000. On May 1, 2014, the stock became worthless. During 2014, Lonnie also had an $8,000 loss on � 1244 small business stock purchased two year
b. $8,000 ordinary loss and $3,000 short-term capital loss.
Ordinary loss (small business stock): ($8,000)
Long term captial gain: 5,000
Less long term capital loss (worthless securities): (1,000)
Net long term capital gain= 4,000
Less short term capital
Steve's home was destroyed by a storm in the current year and the area was declared a disaster area. If Steve elects to treat the loss as having occurred in the prior year, it will still be subject to the 10%-of-AGI reduction based on the AGI of the curre
b. False
Steve will use the AGI of the prior year for determining the limitation.