income taxation
2. If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year. True False
3. Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income. True False
4. A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency. True False
5. 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. True False
6. A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless. True False
7. A business bad debt is a debt unrelated to the taxpayer’s trade or business either when it was created or when it became worthless. True False
8. In determining whether a debt is a business or nonbusiness bad debt, the debtor’s use of the borrowed funds is important. True False
9. A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction. True False
10. A nonbusiness bad debt can offset an unlimited amount of long-term capital gain. True False
11. The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined. True False
12. A bona fide debt cannot arise on a loan between father and son. True False
13. A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss. True False
14. A loss from a worthless security is always treated as a short-term capital loss. True False
15. A loss is not allowed for a security that declines in value. True False
16. Several years ago, John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000. Last year, John sold one-half of his Red Corporation stock to Mike for $12,000. During the current year, John sold the remaining Red Corporation stock for $3,000. John has a $17,000 ($3,000 – $20,000) ordinary loss for the current year. True False
17. If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss. True False
18. Al, who is single, has a gain of $40,000 on the sale of § 1244 stock (small business stock) and a loss of $80,000 on the sale of § 1244 stock. As a result, Al has a $40,000 ordinary loss. True False
19. An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss. True False
20. “Other casualty” means casualties similar to those associated with fires, storms, or shipwrecks. True False
21. A father cannot claim a loss on his daughter’s rental use property. True False
22. A personal casualty loss deduction may be allowed for losses resulting from termites. True False
23. If the amount of the insurance recovery for a theft of business property is greater than the asset’s fair market value but less than it’s adjusted basis, a gain is recognized. True False
24. A theft loss is taken in the year of the theft.
True False
25. Last year, Amos had AGI of $50,000. ...
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