Question 1

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

The answer of If the amount of the insurance recovery...

Question 2

Losses on rental property are classified as deductions for AGI.

Accepted Answer

Losses on rental property are reported on Schedule E of Form 1040 and are considered deductions for adjusted gross income (AGI).

Question 3

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 were put in place as part of the Tax Cuts and Jobs Act to limit the amount of nonbusiness income that can be offset by business losses. Prior to the new rules, taxpayers could use business losses to offset nonbusiness income without any limitation, resulting in a significant tax benefit. The excess business loss rules limit the amount of business losses that can be used to offset nonbusiness income to $250,000 ($500,000 for married taxpayers filing jointly) per year. Any excess losses can be carried forward to future years.

Question 4

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 5

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

Accepted Answer

Noncorporate taxpayers (such as individuals, partnerships, and trusts) are subject to an excess business loss limitation under the tax code, which disallows any amount of business losses that exceed $250,000 ($500,000 for married filing jointly) in a tax year. Any excess business loss is treated as a net operating loss that can be carried forward to future tax years.

Question 8

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

If a loss occurs on insured personal use property, the insurance coverage can reduce the amount of the loss. However, if the insured chooses not to make a claim against their insurer, they would still be responsible for paying the deductible and any other out-of-pocket expenses associated with the loss.

Question 9

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

A nonbusiness casualty loss deduction is reduced by $100 per casualty event and then further reduced by 10% of the taxpayer's adjusted gross income (AGI) for the year in which the loss is claimed, not by the AGI of the previous year.

Question 10

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

Accepted Answer

According to the IRS, a theft loss of investment property is deductible as an itemized deduction and is not subject to the 2%-of-AGI floor.

Question 11

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 if there is still an excess loss, it is only deductible if it is attributable to a Federally declared disaster.

Question 12

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 13

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 repairs needed to restore the property to its pre-loss condition, not the decline in fair market value.

Question 14

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

Accepted Answer

The answer of Research and experimental expenditures do not include...

Question 15

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 a 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 16

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 answer of In 2017, Amos had AGI of $50,000....

Question 17

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 as he cannot claim deductions on a property he does not own or personally rent out. Only the daughter who owns and rents out the property can claim a loss.

Question 18

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

Accepted Answer

This is true as per the current tax laws. A personal casualty loss deduction can only be claimed if the loss occurs in a Federally declared disaster area.

Question 19

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 net gain is positive, there is no deduction.

Question 20

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

Accepted Answer

Depreciable property is a tangible asset that loses value over time due to wear and tear, obsolescence, or other factors. On the other hand, research and experimental expenditures are costs incurred in developing, designing, and testing new products or processes. These are intangible expenses that cannot be depreciated.

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

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.