2023 1 All of the following losses are deductible except A decline in value of securities B total worthlessness | Assignments Online

1

All of the following losses are deductible except

A) decline in value of securities.

B) total worthlessness of securities.

C) sale or exchange of business property.

D) destruction of personal use property by fire, storm, or casualty.

2

The amount realized by Matt on the sale of property to Caitlin includes all of the following with the exception of

A) cash received by Matt.

B) mortgage on the property that is assumed by Caitlin.

C) mortgage on the property paid off by Matt prior to the sale.

D) the FMV of any other property received by Matt in the transaction.

3

In 2000, Michael purchased land for $100,000. Over the years, economic conditions deteriorated, and the value of the land declined to $60,000. Michael sells the property in this year, when it is subject to a $30,000 nonrecourse mortgage. The buyer pays Michael $34,000 cash and takes the property subject to the mortgage. Michael incurs $5,000 in real estate commissions. Michael’s gain or loss on the sale is

A) $4,000 gain.

B) $1,000 loss.

C) $36,000 loss.

D) $41,000 loss.

4

Jamie sells investment real estate for $80,000, resulting in a $15,000 loss. Jamie’s loss is

A) an ordinary loss.

B) a capital loss.

C) a Sec. 1231 loss.

D) a Sec. 1244 loss.

5

Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement. This is Juan’s only casualty transaction this year. Juan’s loss is

A) an ordinary loss.

B) a capital loss.

C) a Sec. 1231 loss.

D) a Sec. 1244 loss.

6

All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of

A) the stock must be owned by an individual or a partnership.

B) the stock must have been issued by a domestic corporation.

C) the stock must have been issued for cash or property other than stock or securities.

D) a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

7

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)

A) ordinary loss of $125,000.

B) long-term capital loss of $125,000.

C) long-term capital loss of $100,000 and ordinary loss of $25,000.

D) ordinary loss of $100,000 and long-term capital loss of $25,000.

8

Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. The stock basis was $150,000. Amy had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy has

A) a $50,000 ordinary loss and $70,000 LTCL.

B) a $50,000 STCL and a $70,000 LTCL.

C) a $100,000 ordinary loss and a $20,000 LTCL.

D) a $100,000 LTCL and a $20,000 ordinary loss.

9

Sarah had a $30,000 loss on Section 1244 stock, a $15,000 loss on sale of a personal use automobile and a $8,000 loss on stock that is not classified as Section 1244. Without regard to net capital loss limitations, Sarah should recognize

A) a ordinary loss of $38,000.

B) a capital loss of $53,000.

C) an ordinary loss of $30,000 and a capital loss of $8,000.

D) an ordinary loss of $30,000 and a capital loss of $23,000.

10

During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From Activity A, he earns $20,000 of income, and from Activity B, he incurs a $30,000 loss. As a result, Mark

A) reports AGI of $80,000.

B) reports AGI of $90,000 with a $10,000 loss carryover.

C) reports AGI of $90,000 with a $30,000 loss carryover.

D) reports AGI of $110,000 with a $30,000 loss carryover.

11

Joy reports the following income and loss:

Salary: $ 120,000

Income from activity A: 60,000

Loss from activity B: ( 35,000)

Loss from activity C: ( 55,000)

 

Activities A, B, and C are all passive activities.

Based on this information, Joy has

 

A) adjusted gross income of $90,000.

B) salary of $120,000 and deductible net losses of $30,000.

C) salary of $120,000 and net passive losses of $30,000 that will be carried over.

D) salary of $120,000, passive income of $60,000, and passive loss carryovers of $90,000.

12

Jeff owned one passive activity.  Jeff sold the activity and realized a $2,000 gain on the sale.  Prior to the sale, he realized a current year loss from the activity of $6,000.  In addition, he has suspended losses from prior years of $7,000.  What is the net impact on Jeff’s AGI this year due to the passive activity?

A) Increase of $2,000.

B) No net change.

C) Decrease of $4,000.

D) Decrease of $11,000.

13

Nancy reports the following income and loss in the current year.

Salary: $ 60,000

Income from activity A: 18,000 

Loss from activity B: (  9,000)

Loss from activity C: ( 13,000)

 

All three activities are passive activities with respect to Nancy. Nancy also has $21,000 of suspended losses attributable to activity C carried over from prior years. During the year, Nancy sells activity C and realizes a $15,000 taxable gain. What is Nancy’s AGI as a result of these transactions?

 

A) $50,000

B) $55,000

C) $64,000

D) $71,000

14

Lewis died during the current year. Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000. Suspended losses of $15,000 were attributable to the property. How much of the suspended loss is deductible on Lewis’s final income tax return?

A) $0

B) $2,000

C) $13,000

D) $15,000

15

Mara owns an activity with suspended passive losses from prior years of $13,000.  In the current year, Mara becomes a material participant in the activity.  This year the activity generates $6,000 of income.  The net effect of this activity on Mara’s current year AGI is a(n)

A) increase of $6,000.

B) decrease of $13,000.

C) -0-.

D) decrease of $7,000.

16

Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss.  Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie. During this year, activity B produces a $9,000 loss. In addition, Charlie acquires an investment in activity X, a passive activity, this year. Charlie’s share of activity X’s income is $13,000. Charlie’s salary this year is $70,000. As a result, this year Charlie must

A) offset B’s loss carryover against X’s current income and carry over $9,000 loss from activity B to next year.

B) offset B’s carryover loss and current loss against X’s income first and then offset any remaining loss against salary.

C) offset B’s $9,000 loss against X’s $13,000 income and offset B’s loss carryover against the remaining $4,000 of X’s income.

D) offset B’s current $9,000 loss against his salary and offset B’s loss carryover against X’s income and carry over $4,000 of loss to next year.

17

Jorge owns activity X which produced a $20,000 passive loss last year. Jorge’s only income last year was wages of $30,000. Jorge is a material participant in activity X this year when it produces a $14,000 loss. This year, Jorge’s wages are $40,000. This year, Jorge also has passive activity income from activity Y of $16,000. What is the total passive activity loss carryover to next year?

A) $-0-

B) $3,000

C) $4,000

D) $18,000

18

Which of the following is not generally classified as a passive activity?

A) an activity in which the taxpayer does not materially participate

B) a limited partnership interest

C) rental real estate

D) a business in which the taxpayer owns an interest and works 1,000 hours a year

19

An individual is considered to materially participate in an activity if any of the following tests are metwith the exception of

A) the individual participates in the activity for more than 500 hours during the year.

B) the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual’s participation for the year.

C) the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years.

D) the individual’s participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals.

20

Tom and Shawn own all of the outstanding stock of Brady 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

A) net income of $42,000.

B) interest income of $22,000 and a passive loss carryover of $8,000.

C) business income of $20,000 and a passive loss carryover of $6,000.

D) business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000.

21

Justin has AGI of $110,000 before considering his $30,000 loss from rental property, which he actively manages. How much of the rental loss can Justin deduct this year?

A) $10,000

B) $20,000

C) $25,000

D) $30,000

22

Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages. How much of the rental loss can he deduct?

A) $0

B) $10,000

C) $20,000

D) $25,000

23

Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss. She actively manages the property. Her deductible loss is

A) $0.

B) $13,500.

C) $25,000.

D) $27,000.

24

Brandon, a single taxpayer, had a loss of $48,000 from a rental real estate activity in which he actively participated. He also had $27,000 of income from another rental real estate activity in which he actively participated. He acquired both investments in 2008. If Brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities, how much loss from rental activities can he use to offset his nonpassive income?

A) $21,000

B) $24,000

C) $25,000

D) $45,000

25

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

A) fire loss

B) water damage caused by a busted water heater

C) death of a pine tree due to a two-day infestation of pine beetles

D) water damage to the walls and ceiling of a taxpayer’s personal residence as the result of gradual deterioration of the roof

26

Nicole has a weekend home on Pecan Island that she purchased in 2005 for $250,000. Recently, the home was appraised at $260,000. After the appraisal, a hurricane hit Pecan Island, severely damaging Nicole’s home. An appraisal placed the value of the home at $140,000 after the hurricane. Because of its prohibitive cost, Nicole had no hurricane insurance. Before any reductions or limitations, Nicole’s casualty loss amount is

A) $0.

B) $10,000.

C) $120,000.

D) $140,000.

27

A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture’s adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica’s AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica’s deductible casualty loss?

A) $5,900

B) $12,000

C) $13,900

D) $20,000

28

 

Lena owns a restaurant which was damaged by a tornado. Th: e following assets were partially destroyed:

Building

·           Basis: $150,000

·           Reduction in FMV: $200,000

·           Insurance Payment: $100,000

Equipment:

·         Basis: $30,000

·         Reduction in FMV: $20,000

·         Insurance Payment: $10,000

 

Lena has AGI of $50,000. What is the amount of Lena’s deductible casualty loss?

A) $54,900

B) $60,000

C) $70,000

D) $180,000

 

29

Leonard owns a hotel which was damaged by a hurricane. The hotel had an adjusted basis of $1,000,000 before the hurricane. A recent appraisal determined that the hotel’s FMV was $1,500,000 before the hurricane and $700,000 afterwards. Leonard received insurance proceeds of $500,000. His AGI is $60,000. What is the amount of his deductible casualty loss?

A) $293,900

B) $300,000

C) $793,900

D) $800,000

30

Jarrett owns a mountain chalet that he purchased in 2008 for $175,000. This year, the home appraised at $300,000. Shortly after the appraisal, a blizzard hit the area in spring of the current year, destroying trees and severely damaging several homes, including Jarrett’s chalet. Its value was reduced to $135,000. Jarrett does not have insurance. Jarrett’s AGI is $200,000. Jarrett’s deductible loss after limitations is

A) $135,000.

B) $144,900.

C) $164,900.

D) $165,000.

31

Hope sustained a $3,600 casualty loss due to a severe storm. She also incurred a $800 loss from a theft in the same year. Both the casualty and theft involved personal-use property. Hope’s AGI for the year is $25,000 and she does not have insurance coverage. Hope’s deductible casualty loss is

A) $1,700.

B) $1,800.

C) $4,200.

D) $4,300.

32

Wesley completely demolished his personal automobile in a car accident. Damage to the auto was estimated at $35,000. Wesley had purchased the car a few years ago for $60,000. He received an insurance reimbursement of $28,000. His adjusted gross income this year was $55,000 and he incurred no other losses during the year. What amount can he deduct as a casualty loss on his income tax return after limitations?

A) $1,400

B) $1,500

C) $6,900

D) $7,000

33

In the current year, Marcus reports the following casualty gains and losses on personal-use property. Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty.

Asset:

·         X:

Reduction in FMV: $8,000

Adjusted Basis: $2,000

Insurance: $7,000

Holding  Period: 2 years

·         Y 
    Reduction in FMV: 3,000

Adjusted Basis: 5,000

Insurance: 2,000

Holding  Period: 10 months

 

·         Z

Reduction in FMV : 2,500

Adjusted Basis : 1,300

Insurance : 1,000

Holding  Period : 8 months

 

As a result of these losses and insurance recoveries, Marcus must report

A) a net gain of $3,700.

B) a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z.

C) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z.

D) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z.

 

34

Wesley completely demolished his personal automobile in a car accident. Damage to the auto was estimated at $35,000. Wesley had purchased the car a few years ago for $60,000. He received an insurance reimbursement of $28,000. His adjusted gross income this year was $55,000 and he incurred no other losses during the year. What amount can he deduct as a casualty loss on his income tax return after limitations?

A) $1,400

B) $1,500

C) $6,900

D) $7,000

35

A flood damaged an auto owned by Mr. and Mrs. South on June 15 of this year. The car was only used for personal purposes.

 

Fair market value before the flood: $18,500

Fair market value after the flood: 2,000

Cost basis: 20,000

Insurance proceeds: 13,000

Adjusted gross income for this year: 25,000

Business use of auto: -0-

 

Based on these facts, what is the amount of the South’s casualty loss deduction after limitations for this year?

A) $900

B) $1,000

C) $4,400

D) $4,500

36

In February 2012, 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 2012, and her 2013 AGI is $80,000. Amelia suffers no other casualty losses in either year. Amelia may deduct

A) $7,900 in 2012.

B) $22,000 in 2013.

C) $13,900 in 2013.

D) $14,000 in 2013.

37

This summer, Rick’s home (which has a basis of $80,000) is damaged by a tornado. An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado. Rick estimates that the insurance company will reimburse him for 60% of the loss.  Next year, the insurance company pays Rick $20,000. Rick’s current year’s AGI is $50,000 and his next year’s AGI is $55,000. Rick suffers no other casualty losses in either year. After limitations, Rick may deduct a casualty loss this year of

A) $ 8,900.

B) $ 9,900.

C) $15,000.

D) $35,000.

38

Juanita, who is single, is in an automobile accident in 2012 and her car sustains $6,200 in damages. Because both drivers received tickets in the accident, Juanita does not expect to recover any of the loss from her insurance company. Juanita’s 2012 AGI is $31,000, and she deducts a $3,000 loss on her 2012 tax return. Her other itemized deductions in 2012 exceed $12,000. In 2013, Juanita’s insurance company reimburses her $2,800. Juanita’s 2012 AGI is $28,000. As a result, Juanita must

A) amend 2012 to show a $200 loss.

B) do nothing and simply keep the $2,800.

C) do nothing to the 2012 return but report $2,800 of income on her 2013 return.

D) amend the 2012 return to show $0 loss and file her 2013 return to show a $200 loss.

39

Constance, who is single, is in an automobile accident in 2012, and her car sustains $6,200 in damages. Because both drivers received tickets in the accident, Constance does not expect to recover any of the loss from her insurance company. Constance’s 2012 AGI is $31,000. Her casualty loss is $3,000; she has other itemized deductions of $1,200. In 2013, Constance’s insurance company reimburses her $2,800. Constance’s 2013 AGI is $28,000. As a result, Constance must

A) amend the 2012 return to show the $200 loss.

B) do nothing and simply keep the $2,800.

C) amend the 2012 return to show $0 loss and file her 2013 return to show $200 loss.

D) do nothing to the 2012 return but report $2,800 of income on her 2013 return.

40

Last year, Abby loaned Pat $10,000 as a gesture of their friendship. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a(n)

A) itemized deduction.

B) ordinary loss.

C) long-term capital loss.

D) short-term capital loss.

41

In October 2012, Jonathon Remodeling Co., an accrual-method taxpayer, remodels and renovates an office building for Dale and bills him $30,000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2013. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will report

A) $0 income in both years.

B) $30,000 income in 2012 and a bad debt deduction of $30,000 in 2013.

C) $30,000 income in 2012 and a STCL of $30,000 in 2013 limited to $3,000 after netting.

D) $30,000 income in 2012 and then must amend last year’s return to show $0 income when advised of the bankruptcy.

42

Martha, an accrual-method taxpayer, has an accounting practice. In 2011, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2012, Martha sells her practice and all accounts to David. Arnold’s debt becomes worthless that year. The result is

A) Martha deducts a nonbusiness bad debt in 2012.

B) Martha deducts a business bad debt in 2012

C) David deducts a business bad debt in 2012.

D) David deducts a nonbusiness bad debt in 2012.

43

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 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

A) $10,000.

B) $3,000.

C) $7,000.

D) -0-

44

In 2011 Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately the market for that industry sector plunged, and Paula incurred large losses. In 2012 Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is

A) Grace deducts a business bad debt of $12,000 in 2012.

B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2012.

C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2012 and carries $9,000 over to subsequent years.

D) Grace deducts a business bad debt of $3,000 in 2012 and carries $9,000 over to subsequent years.

45

Which of the following expenses or losses could create a net operating loss for an individual taxpayer?

A) large losses on sales of investment assets

B) an operating loss from a sole proprietorship

C) large charitable contributions

D) all of the above

46

An individual taxpayer has negative taxable income for the year.  In calculating the net operating loss created, which of the following expenses or losses will be added back to the negative taxable income?

A) capital losses

B) personal and dependency exemptions

C) nonbusiness deductions in excess of nonbusiness income

D) all of the above

47

A taxpayer incurs a net operating loss in the current year.  With respect to the application of the NOL,

A) the taxpayer will carry back the NOL three years first, then carry forward any balance for five years.

B) the taxpayer must carry forward the loss and has up to 20 years to use it.

C) the taxpayer can carry forward the loss indefinitely until there is sufficient taxable income to use it up.

D) the taxpayer will first carry back the NOL for two years, then carryforward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.