Question 1

The purpose of the excess business loss rules is to limit the amount of nonbusiness income (e.g., salaries, interest, dividends) that can be sheltered from tax as a result of business losses.

Accepted Answer

The excess business loss rules limit the amount of business losses that can be used to offset nonbusiness income, in order to prevent excessive tax shelters.

Question 2

If investment property is stolen, the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

Accepted Answer

The amount of the loss for stolen investment property is indeed the adjusted basis of the property at the time of the theft, but the reduction of $100 and 10% of AGI applies specifically to personal casualty and theft losses, not to investment or business property.

Question 3

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

Accepted Answer

This is true because insurance coverage is intended to offset the financial loss incurred by the insured in the event of damage or destruction to the insured property. Therefore, if no claim is made against the insurer, the insured still benefits from the coverage in the form of reduced personal loss.

Question 4

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.

Accepted Answer

Nonbusiness casualty losses are subject to a 10% of adjusted gross income (AGI) threshold before they can be deducted on a tax return. However, if the loss is spread between two taxable years, the loss in the second year is not automatically reduced by 10% of AGI from the first year. Instead, the taxpayer must recalculate the 10% threshold for the second year based on the adjusted gross income for that year.

Question 5

In 2017, Amos had AGI of $50,000.In December 2017, Amos also had a diamond ring stolen that cost $20,000 and was worth $17,000 at the time of the theft.He itemized deductions on his 2017 tax return.In 2019, after a variety of investigations, Amos recovered $17,000 from the insurance company.Therefore, he must include $11,900 in gross income on the tax return for the current year.

Accepted Answer

The insurance recovery is included in gross income because Amos itemized deductions on his 2017 tax return.

Question 6

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

Accepted Answer

The cost of repairs to damaged property is often used as a measure of the loss in value of the property, as it represents the financial amount required to bring the property back to its pre-damage condition.

Question 7

If personal casualty gains exceed personal casualty losses (after deducting the $100 floor), there is no itemized deduction.

Accepted Answer

This is true according to the IRS rules for casualty losses. If the gains exceed the losses, there is no net loss to deduct as an itemized deduction.

Question 8

If an election is made to defer deduction of research expenditures, the amortization period is based on the expected life of the research project if less than 60 months.

Accepted Answer

The amortization period for deferred research expenditures is statutorily set at 60 months or more, starting with the midpoint of the tax year in which the expenditures are paid or incurred, and is not based on the expected life of the research project.

Question 9

Taxpayer's home was destroyed by a storm in the current year in a Federally declared disaster area.If the taxpayer elects to treat the loss as having occurred in the prior year, it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.

Accepted Answer

If the taxpayer elects to treat the loss as having occurred in the prior year, it will be subject to the 10%-of-AGI reduction based on the AGI of the prior year, not the current year.

Question 10

A business theft loss is taken in the year of the theft.

Accepted Answer

The answer of A business theft loss is taken in...

Question 11

If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value
(FMV) but less than its adjusted basis, a gain is recognized.

Accepted Answer

If the insurance recovery is greater than the FMV but less than the adjusted basis, no gain is recognized. Instead, the loss is limited to the difference between the adjusted basis and the FMV.

Question 12

Losses on rental property are classified as deductions for AGI.

Accepted Answer

Losses on rental property are considered deductions for AGI and can offset other forms of income, such as wages or business income, when calculating taxable income.

Question 13

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

Accepted Answer

A father cannot claim a loss on his daughter's rental use property because only the person who has legal ownership of the property can claim a loss on it.

Question 14

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

Accepted Answer

The amount of loss for partial destruction of business property is the cost of repairing or replacing the property that was damaged. Fair market value may be used in some cases if repairing or replacing the property is not economically feasible.

Question 15

Research and experimental expenditures do not include the cost of consumer surveys.

Accepted Answer

Research and experimental expenditures typically focus on the development of new products or processes, while consumer surveys are considered market research, which is not included in these expenditures.

Question 16

Currently, a personal casualty loss deduction is allowed only for losses occurring in a Federally declared disaster area.

Accepted Answer

A personal casualty loss deduction is currently only allowed for losses occurring in a Federally declared disaster area. This means that if a taxpayer experiences a loss that is not in a Federally declared disaster area, they cannot currently claim it as a personal casualty loss deduction on their taxes.

Question 17

Personal casualty gains are allowed to offset personal casualty losses.Currently, if an excess casualty loss results, it is not deductible (unless attributable to a Federally declared disaster).

Accepted Answer

Personal casualty gains can be used to offset personal casualty losses, but any excess loss is currently only deductible if it was attributable to a Federally declared disaster.

Question 18

If a noncorporate taxpayer has an excess business loss for the year, it is not allowed.

Accepted Answer

Noncorporate taxpayers are not allowed to deduct excess business losses for the year. Any excess business loss can be carried forward and deducted in future years subject to certain limitations.

Question 19

A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.

Accepted Answer

Theft losses of investment property are deductible as itemized deductions on Schedule A of Form 1040, and are not subject to the 2%-of-AGI floor. However, the deduction is subject to certain limitations and requirements specified by the IRS.

Question 20

The cost of depreciable property is not a research and experimental expenditure.

Accepted Answer

Depreciable property refers to tangible assets such as equipment or buildings that lose value over time due to wear and tear or obsolescence. While the cost of acquiring depreciable property can be deducted over time through depreciation, it is not considered a research and experimental expenditure which refers to costs incurred for activities aimed at discovering new knowledge or improving existing products or processes.

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