02 Jan When a net operating

Question 1

In the computation of a net operating loss, which of the following items is not added to the negative taxable income?

1) Losses incurred in a transaction entered into for profit.

2) Deductible alimony payments.

3) Personal theft loss.

4) Losses from theft of securities.

5) None of the above.

Question 2

Which of the following is not a “trade or business” expense?

1) Interest on business indebtedness.

2) Property taxes on business property.

3) Parking ticket paid on business auto.

4) Depreciation on business property.

5) All of the above are “trade or business” expenses.

Question 3

The legal cost of having a will prepared is not deductible.

1) True

2) False

Question 4

Which of the following are deductions for AGI?

1) Mortgage interest on a personal residence.

2) Property taxes on a personal residence.

3) Mortgage interest on a building used in a business.

4) Fines and penalties incurred in a trade or business.

5) None of the above.

Question 5

Fines and penalties paid for violations of the law (e.g., illegal dumping of hazardous waste) are deductible only if they relate to a trade or business.

1) True

2) False

Question 6

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

1) True

2) False

Question 7

Which of the following can be claimed as a deduction for AGI?

1) Personal casualty losses.

2) Investment interest expenses.

3) Medical expenses.

4) Property taxes on personal use real estate.

5) None of the above.

Question 8

If a taxpayer has a net operating loss (NOL) in 2016 of $20,000, of which $8,000 is attributable to a theft of rental use property, the taxpayer may:

1) Carry all of the NOL of $20,000 back 5 years.

2) Carry all of the NOL of $20,000 back 3 years.

3) Carry $8,000 of the NOL back 3 years and the remainder of the NOL of $12,000 back 2 years.

4) All of the above.

5) None of the above.

Question 9

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

1) True

2) False

Question 10

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

1) True

2) False

Question 11

Walt wants to give his daughter $1,800 for Christmas. As an alternative, she suggests that he pay the property taxes on her residence. If Ralph pays the property taxes, he can deduct them.

1) True

2) False

Question 12

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

1) True

2) False

Question 13

In 2015, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home. Sarah’s insurance company told her that her policy did not cover the theft. Sarah’s other itemized deductions last year were $2,000. She had AGI of $30,000 last year. In August of 2016, Sarah’s insurance company decided that Sarah’s policy did cover the theft of the silverware and they paid Sarah $5,000. Determine the tax treatment of the $5,000 received by Sarah during 2016.

1) None of the $5,000 should be included in gross income.

2) $2,900 should be included in gross income.

3) $5,000 should be included in gross income.

4) Last year’s return should be amended to include the $5,000.

5) None of the above.

Question 14

When a net operating loss is carried back to a non-loss year, the net operating loss can affect the medical expense deduction of the carryback year.

1) True

2) False

Question 15

An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss.

1) True

2) False