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

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Question 1

True/False

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If qualified production activities income (QPAI)cannot be used in the calculation of the domestic production activities deduction in 2010 because of the taxable income limitation,the product of the amount not allowed multiplied by 9% can be carried over for 5 years.

A) True
B) False

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Question 2

Multiple Choice

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In 2010,Grant's personal residence was damaged by fire.Grant was insured for 90% of his actual loss,and he received the insurance settlement.Grant had adjusted gross income,before considering the casualty item,of $30,000.Pertinent data with respect to the residence follows: What is Grant's allowable casualty loss deduction?

A) $0.
B) $6,500.
C) $6,900.
D) $10,000.
E) $80,000.

F) B) and D)
G) B) and E)

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Question 3

Multiple Choice

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In 2010,Mary had the following items: Assuming that Mary files as head of household (has one dependent child) ,determine her taxable income for the current year.

The amount of a loss on insured business use property is reduced by the insurance coverage if no claim is made against the insurer.

Which of the following events would produce a deductible loss?

Jed is an electrician.Jed and his wife are cash 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 judgement.Jed was never able to collect the judgement nor the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?

A loss is allowed for a security that declines in value.

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.

Discuss the treatment of casualty and theft losses incurred with property in a transaction entered into for profit.

If an election is made to defer deduction of research expenditures,the amortization period is based on the expected life of the research project.

The amount of complete worthlessness on a nonbusiness bad debt is deducted at final settlement.

A loss from a worthless security is always treated as a long-term capital loss.

On February 20,2009,Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1,2010,the stock became worthless.During 2010,Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago,a $9,000 loss on a nonbusiness bad debt,and a $5,000 long-term capital gain.How should Bill treat these items on his 2010 tax return?

Maria,who is single,had the following items for 2010: Determine Maria's adjusted gross income for 2010.

Bankruptcy is generally an indication that a debt is worthless.

Losses on rental property are classified as deductions for AGI.

Alicia was involved in an automobile accident in 2010.Her car was used 50% for business and 50% for personal use.The car had originally cost $40,000.At the time of the accident,the car was worth $20,000 and Alicia had taken $8,000 of depreciation.The car was totally destroyed and Alicia had let her car insurance expire.If Alicia's AGI is $50,000 (before considering the loss) ,determine her itemized deduction for the casualty loss.

John had adjusted gross income of $60,000.During the year his personal use summer home was damaged by a fire.Pertinent data with respect to the home follows: John had an accident with his personal use car.As a result of the accident,John was cited with reckless driving and willful negligence.Pertinent data with respect to the car follows: What is John's deductible casualty loss?

In 2009,Robin Corporation incurred the following expenditures in connection with the development of a new product: In 2010,Robin incurred the following additional expenditures in connection with the development of the product: In October 2010,Robin began receiving benefits from the project.If Robin elects to expense research and experimental expenditures,determine the amount and year of the deduction. Deductibility of research and experimental expenditures is permitted in the year of incurrence.

Jim had a car accident in 2010 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 personal use.Jim received an insurance recovery of 80% of the value of the car at the time of the accident.If Jim's AGI for the year is $50,000,determine his deductible loss on the car.