Tax Accounting - During the current year, Beth and Bill, who file a joint return

Question 1 (10 points)

SHORT ANSWER:

During the current year, Beth and Bill, who file a joint return, incurred the following items of income and loss:

Salary $130,000

Activity A (Passive) $10,000

Activity B (rental real estate/nontrade or business) ($30,000)

Activity C (rental real estate/nontrade or business) ($20,000)

Beth and Bill actively participate in activities B and C, and they own 100% of each rental property.

(A) What is their AGI for the year?

(B) What is the amount of suspended losses, if any, that may be carried over with respect to each activity?

Question 2 (10 points)

In the current tax year, Neil’s personal automobile was totaled in a traffic accident. Neil had purchased the automobile two years earlier for $28,000. The FMV of the automobile just prior to the accident was $18,000. The automobile is now worthless. Neil received a $14,000 insurance check in settlement of his accident claim. Later that same year, a thief broke into Neil’s home and took several antiques purchased several years ago for $8,000. Their current FMV at the date of the theft was $12,000. The antiques were not insured. Neil’s AGI for the current year is $60,000. What is the amount of Neil’s deductible casualty loss in the current year?

Question 2 options:

Question 3 (10 points)

SHORT ANSWER:

In 2013, Sarah loans Seymour $5,000 for his use in establishing his business. As Seymour has no other assets and needs cash to establish the business, the loan agreement provides that Seymour will repay the $5,000 debt to Sarah with interest at the prevailing rate over a five-year period. Seymour’s business is unsuccessful, and he files for bankruptcy in 2014. By the end of 2014, it is estimated that Seymour’s creditors will receive only 20% of the amount they are owed. In 2015, the bankruptcy proceedings are closed, and the creditors receive 10% of the amount due on Seymour’s debt obligations.

(a) What is Sarah’s bad debt deduction for 2014?

(b) What is Sarah's bad debt deduction for 2015?

Question 4 (10 points)

SHORT ANSWER:

During 2014, Kiran, a single taxpayer, reported the following income and expense items relating to her interior design business:

Revenues $52,000

Cost of Goods Sold 41,000

Advertising 3,300

Office supplies 1,700

Rent 13,800

Contract labor 28,000

Kiran also worked part-time during the year, earning $13,500. She reports a long-term capital gain of $4,200, and a short-term capital loss of $3,800. Her itemized deductions total $5,200.

(a) What is Kiran’s taxable income or loss for the year?

(b) What is Kiran’s NOL for the year?