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

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Question 51

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In 2014, Theo, an employee, had a salary of $30,000 and experienced the following losses: $\begin{array}{lr}\text {Loss from damage to rental property }&(\$10,000) \\\text {Unreimbursed loss from theft of business }&(5,000) \\\text {Personal casualty gain }&4,000\\\text {Personal casualty loss (after \$ 100 floor) }&(9,000) \\\end{array}$ Determine the amount of Theo's itemized deduction from these losses.

A) $0.
B) $2,800.
C) $2,900.
D) $4,580.
E) None of the above.

F) A) and D)
G) A) and B)

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Question 52

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In 2013, Robin Corporation incurred the following expenditures in connection with the development of a new product: $\begin{array}{lr}\text { Salaries } & \$ 100,000 \\\text { Supplies } & 40,000 \\\text { Market survey } & 10,000 \\\text { Depreciation } & 25,000\end{array}$ In 2014, Robin incurred the following additional expenditures in connection with the development of the product: $\begin{array}{lr}\text { Salaries } & \$ 125,000 \\\text { Supplies } & 50,000 \\\text { Depreciation } & 30,000 \\\text { Advertising } & 10,000\end{array}$ In October 2014, Robin began receiving benefits from the project. If Robin elects to expense research and experimental expenditures, determine the amount and year of the deduction.

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Deductibility of research and experiment...

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Question 53

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Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgment. Jed was able to collect the judgment but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?

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.

Susan has the following items for 2014: -Loss on rental property caused by termites-$110,000. Insurance covered 80% of the loss. -Loss on personal use automobile-$10,000. The insurance policy does not cover the first $3,000 of loss. Susan decided not to file a claim for the loss. -Loss on a painting stolen from Susan's house. Susan purchased the painting three years ago as an investment. She paid $40,000 for the painting and it was worth $35,000 at the time of the theft. The painting was insured for the fair market value. -Salary-$40,000. Determine Susan's AGI and total amount of itemized deductions for 2014.

Why was the domestic production activities deduction (DPAD) enacted by Congress?

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

On September 3, 2013, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000. On December 31, 2013, the stock was worth $85,000. On August 15, 2014, Able was notified that the stock was worthless. How should Able report this item on his 2014 tax return?

If qualified production activities income (QPAI) cannot be used in the calculation of the domestic production activities deduction in 2014 because of the taxable income limitation, the product of the amount not allowed multiplied by 9% can be carried over for 5 years.

Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $8,000 long-term capital gain last year. Her taxable income for last year was an NOL of $15,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?