Chapter 7
1. An operating loss occurs when an entity’s deductions exceeds the income generated for the period.
a.
True
b.
False
True
2. A transaction loss occurs when an asset is disposed of at less than its basis.
a.
True
b.
False
True
3. A corporation has a net capital loss. The significance of a net capital loss in 2015 for a corporation is that it can be
carried back 3 years and carried forward 5 years by a corporation to offset capital gains in other taxable years.
a.
True
b.
False
True
4. The term tax shelter refers to investment property that involves residential and commercial real estate.
a.
True
b.
False
False
5. Lu-Yin purchased her consulting business with $75,000 of her own funds and she borrowed $125,000 from the local
bank. If she is personally responsible for the loan, she is at risk only for $50,000.
a.
True
b.
False
False
6. Material participation requires that an individual participates in an activity for more than 200 hours per year or spends
more than 50 hours a year in the activity and the time spent is more than anyone else spends on the activity.
a.
True
b.
False
False
7. Virginia owns a business that rents power equipment to construction companies. Despite maintaining, delivering, and
picking up the equipment, Virginia’s business is passive since it is a rental activity.
a.
True
b.
False
False
8. While most rental activities are classified as passive, an exception is low-income housing.
a.
True
b.
False
True
9. Portfolio income consists of unearned income from dividends, interest, royalties, annuities, and other assets held as
investments.
a.
True
Chapter 7
b.
False
True
10. A closely held corporation cannot offset net passive losses against income of the business.
a.
True
b.
False
False
11. Dwight owns an apartment complex that has a $30,000 loss. His adjusted gross income is $85,000 before the loss.
Since he qualifies as an active participant he may deduct $25,000.
a.
True
b.
False
True
12. Leon is allowed to deduct all the current and suspended losses on his passive activity if he sells his entire interest in
the passive activity during the year.
a.
True
b.
False
True
13. John discovers that termites have destroyed the front porch of his office building. The damage occurred over a 3-year
period. He is eligible for a casualty loss deduction.
a.
True
b.
False
False
14. The Baskerville Corporation has a net $6,500 capital loss during the current taxable year. They will be able to deduct
$3,000 this year and carries the remaining $3,500 forward.
a.
True
b.
False
False
15. Any corporate capital loss not used in the current year can be carried back 2 years and carried forward 20 years to
offset capital gains in those years.
a.
True
b.
False
False
16. Constance owns a boutique. During the current year, she has gross income of $400,000 and allowable deductions
related to the business of $425,000.
Constance has incurred a transaction loss, which represents her unrecovered cost of
capital.
Constance has suffered an annual loss, which may be carried back 2 years or forward 20
years if not used in the current year.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
Chapter 7
d.
Neither statement is correct.
17. Barry owns all of the stock of Jerrico Corporation; an internet based gaming firm. Barry is also the President of and
works full-time for Jerrico. During the current year, Jerrico has a loss of $125,000 from its operations.
If Jerrico is an S Corporation, Barry may deduct the loss on his personal tax return as a
deduction for AGI.
If Jerrico is a regular corporation, the corporation can elect to carryforward the loss to
reduce taxable income during the next 20 years.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
18. Perry owns all of the stock of Sound Corporation. Perry is also the President of Sound and works full-time running
Sound. During the current year, Sound has a loss of $75,000 from its operations.
If Sound is an S Corporation, Perry deducts the loss on his personal tax return as a
deduction from AGI.
If Sound is a regular corporation, the corporation can elect to carryforward the loss to
reduce taxable income during the next 20 years.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
19. Kenneth owns all of the stock of Kearney Corporation. Kenneth is also the President of Kearney and works full-time
running the corporation. During the current year, Kearney has a loss of $40,000 from its operations.
If Kearney is an S Corporation, the corporation may carryback the loss 2 years (and obtain
a refund of taxes paid) with any remaining loss carried forward 20 years.
If Kearney is a regular corporation, Kenneth may deduct the loss for AGI on his personal
tax return because the corporation is a flow through entity.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
20. Baker Corporation suffers a net operating loss (NOL) of $65,000 in 2014. Baker was incorporated in 2012. Baker had
a NOL of $20,000 in 2012 and taxable income of $35,000 in 2013. The corporation expects a taxable income of $200,000
in 2015. What valid alternatives are available to Baker concerning the $50,000 loss?
Baker can carryback the loss to 2015 and will receive a refund of $2,250.
Baker can elect to carryforward the loss and expect to receive tax savings of $19,500.
a.
Only statement I is correct.
b.
Only statement II is correct.
Chapter 7
c.
Both statements are correct.
d.
Neither statement is correct.
21. Carmen purchased a business for $150,000 by investing $40,000 of her own funds and borrowing $110,000 from
Local National Bank. Carmen signed the note payable as a personal guarantor. In the first year of operations the business
had an operating loss of $120,000. During the second year, the business has an operating loss of $45,000. How much of
the year two loss is deductible against Carmen’s income from other business activities? Assume that Carmen materially
participates in the business.
a.
$- 0 –
b.
$15,000
c.
$30,000
d.
$45,000
e.
$120,000
c
22. Sullivan, a pilot for Northern Airlines, has adjusted gross income of $92,000 before considering the following losses.
The passive activity rules disallow the deduction for a loss in which of the following?
Sullivan has a $4,500 loss from his ownership interest in Cowco, a feeder-cattle limited
partnership. Sullivan is a general partner and is responsible for day-to-day management
decisions.
Sullivan has a $7,000 loss from his ownership interest in Swineco, a feeder-pig limited
partnership. Sullivan is a limited partner.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
23. Maria, an engineer, has adjusted gross income of $167,000 before considering the following losses. The passive
activity rules disallow the deduction for the loss in which of the following?
Maria has a $21,000 loss from her ownership of Family Apartment Village, a low-income
housing project.
Maria owns and actively participates in managing a rental house across the street from East
State College. This activity generates a $7,000 loss in the current year.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
24. If an individual is not a material participant, a rental activity is considered passive. However, certain rental activities
are not deemed to be rentals for passive loss purposes even if the individual is not a material participant. Which of the
following is not excluded from the passive loss rules?
a.
Golf cart rentals.
b.
Hotel rooms.
Chapter 7
c.
Jet ski rentals.
d.
Apartment rentals.
e.
Construction equipment rentals.
25. Pedro owns a 50% interest in a limited partnership that operates an apartment complex. During the current year, the
partnership generates a taxable rental loss of $42,000. Pedro’s other sources of income are salary of $55,000 and interest
of $18,000. What is Pedro’s allowable loss from the apartment?
a.
$ – 0 –
b.
$18,000
c.
$21,000
d.
$25,000
e.
None of the above.
a
26. Jose, Mahlon, and Eric are partners in New Communications Partnership. Jose owns a 50% interest, Mahlon owns a
35% interest, and Eric owns a 15% interest. During the current year (the first year of operation for the enterprise), the
business has a loss. Although the partnership is established as a general partnership, Jose functions as the manager and
performs all of the day-to-day duties of a chief operating officer. Mahlon and Eric are merely investors who receive
monthly reports about the business. At the close of the current tax year, each partner will receive a share of the partnership
loss. Which of the partners will be able to deduct his (their) share of the partnership loss?
I.
Jose
II.
Mahlon
III.
Eric
a.
Mahlon
b.
Jose, Mahlon, and Eric
c.
Jose
d.
Jose and Mahlon
e.
Mahlon and Eric
c
27. During 2015, Pamela worked two “jobs.” She performed financial consulting activities for 1,000 hours and real estate
development and rental activities for 1,200 hours. Her real estate development and rental activities produced a loss of
$35,000. Her financial consulting generated a net business income of $40,000. How much of the loss can Pamela deduct
against her financial consulting income?
a.
$-0-
b.
$17,500
c.
$25,000
d.
$35,000
e.
$40,000
a
28. During the current year, Alyssa incurred a net loss of $27,500 from a 5 percent interest in a partnership that operated
and managed an office building. Alyssa had adjusted gross income from other sources of $110,000 and spent 67 hours
assisting in the management of the building. Determine Alyssa’s total adjusted gross income for the current year.
a.
$82,500
b.
$90,000
Chapter 7
c.
$100,000
d.
$105,000
e.
$110,000
e
29. Kenzie and Ross equally own rental real estate. The rental property generated a loss of $20,000. Kenzie is also
employed as a part-time Tupperware salesperson and full time as a real estate agent. For her share of the loss to be fully
deductible, she must:
Not have an adjusted gross income in excess of $100,000.
Spend more than 750 hours, in total, as a realtor
Spend more than 100 hours managing the rental activity, and spend more time than Ross.
She must spend more than 50% of her time as a realtor and must own more than 5% of the
real estate agency.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Statements I and II are correct.
d.
Statements II, III, and IV are correct.
e.
Statements I, II, III, and IV are correct.
30. Travis is a 30% owner of 3 rental houses. He spends 625 hours a year managing the properties. In addition, he owns a
20% interest in a real estate business to which he devotes 1,800 hours a year. The rental units generate a total loss of
$22,000, and Travis’ adjusted gross income in the current year, before considering the rental properties, is $120,000. How
much of the loss can Travis deduct?
a.
$- 0 –
b.
$4,500
c.
$6,600
d.
$15,000
e.
$22,000
c
31. Susan is the owner of a 35-unit apartment complex. She spends 950 hours a year managing the property. In addition,
she works part-time for a mortgage company. She spends 1,150 hours a year as a bookkeeper at the mortgage company.
The apartment complex generated a loss of $32,000, and Susan’s adjusted gross income for the current year, before
considering the apartment complex, is $48,000. How much of the loss can Susan deduct?
a.
$- 0 –
b.
$14,476
c.
$16,727
d.
$25,000
e.
$32,000
32. A passive activity
includes an interest in a limited partnership held by a limited partner investor.
includes a working interest in an oil and gas deposit.
a.
Only statement I is correct.
Chapter 7
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
a
33. A passive activity
includes any trade or business in which a taxpayer does not materially participate.
includes rentals of apartment buildings, rental houses, etc., where no significant personal
services are involved.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
34. Which of the following must be classified as “portfolio income?”
I.
Dividend income from an investment in Lincoln Corp. common stock.
II.
Royalty income from the ownership of the mineral rights on land. The taxpayer does not
share the expenses with the extraction company.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
35. Which of the following must be classified as “portfolio income?”
Interest income on CDs from First National Bank.
Loss realized from the sale of one-half of his stock shares in Lockleed Corp. Lockleed is
qualified small business stock.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
36. A taxpayer had the following for the current year:
Active
Portfolio
Passive
Income
Income
Income
Income
$75,000
$22,000
$55,000
Deductions
(45,000)
(16,000)
(110,000)
Income(Loss)
$30,000
$6,000
$(55,000)
If the taxpayer is a closely held corporation, taxable income from the three activities is
income of $6,000.
If the taxpayer is an individual and the passive income is not related to a rental real estate
activity, taxable income is $36,000.
Chapter 7
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
37. If a taxpayer has the following for the current year:
Active
Portfolio
Passive
Income
Income
Income
Income
$75,000
$22,000
$55,000
Deductions
(45,000)
(16,000)
(110,000)
Income(Loss)
$30,000
$6,000
$(55,000)
If the taxpayer is a regular corporation, taxable income from the three activities is a loss of
$19,000.
If the taxpayer is an individual and the passive income is related to a rental real estate
activity in which the taxpayer is an active participant, taxable income is $11,000.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
38. Salvador owns a passive activity that has a basis of $44,000 and a suspended loss of $18,000. Salvador’s taxable
income from active and portfolio income is $55,000. If Salvador’s sells the passive activity for $56,000 how will he report
the transaction on his tax return?
Salvador will report an ordinary loss of $18,000.
Salvador will report a capital gain of $12,000.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
39. During the year, Aimee reports $30,000 of active business income, $15,000 of income from passive activity X, and a
$25,000 loss from passive activity Y. Determine the tax consequences of these events.
The $15,000 income from activity X can offset $15,000 of the loss from activity Y.
Any passive loss that is not deducted in the current year is suspended.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
40. Janine is an engineering professor at Southern College. Her annual salary is $110,000. She owns two 3-unit apartment
buildings near the university. Because of the proximity to campus, Janine actively manages the property. During the
Chapter 7
current year, the rental of the property produced a $29,500 loss. How much of the loss may Janine deduct for the current
year?
a.
$- 0 –
b.
$14,750
c.
$20,000
d.
$25,000
e.
$29,500
c
41. Nancy is the owner of an apartment complex. She actively participates in the management of the building. During the
current year, it generates a taxable loss of $27,000. Nancy’s other sources of income are salary of $52,000 and interest of
$21,000. What is Nancy’s allowable loss from the apartment?
a.
$- 0 –
b.
$18,000
c.
$25,000
d.
$27,000
e.
None of the above.
c
42. Nelson is the owner of an apartment complex. He actively participates in the management of the building. During the
current year, it generates a taxable loss of $33,000. Nelson’s other sources of income are salary of $148,000 and interest of
$12,000. What is Nelson’s allowable loss from the apartment?
a.
$- 0 –
b.
$ 1,000
c.
$12,000
d.
$25,000
e.
$33,000.
a
43. Bowden is a single individual and has the following income (loss) for the current tax year:
Salary
$85,000
Dividends and interest
24,000
Actively managed rental property
(23,000)
What is Bowden’s adjusted gross income for this year?
a.
$ 85,000
b.
$ 86,000
c.
$ 88,500
d.
$ 89,500
e.
$109,000
c
44. Karl has the following income (loss) during the current year:
Net business income
$45,500
Dividends and interest
12,000
Actively managed rental property
(34,000)
What is Karl’s adjusted gross income for this year?
Chapter 7
a.
$23,500
b.
$31,400
c.
$32,500
d.
$45,500
e.
$57,500
c
45. Natalie is the owner of an apartment complex. She actively participates in the management of the building. During the
current year, it generates a taxable loss of $33,000. Natalie’s other sources of income are salary of $114,000 and interest of
$16,000. What is Natalie’s allowable loss from the apartment in the current year?
a.
$-0-
b.
$10,000
c.
$15,000
d.
$16,000
e.
$25,000
46. Tim owns 3 passive investments. During the current year, he has the following income and loss from each activity:
Activity 1
$(7,000)
Activity 2
(3,000)
Activity 3
4,000
What is the amount of suspended loss allocated to Activity 2?
a.
$- 0 –
b.
$1,800
c.
$3,000
d.
$4,200
e.
$6,000
47. Ricardo owns interests in 3 passive activities: A, B, and C. During the current year, activity A realizes income of
$8,000 while activities B and C realize losses of $16,000 and $24,000, respectively. Determine the amount of suspended
loss attributable to activity C.
a.
$- 0 –
b.
$ 8,000
c.
$12,800
d.
$19,200
e.
$24,000
48. Ling owns 3 passive investments. During the last two years, she has the following income and loss from each activity:
2014
2015
Activity 1
$(14,000)
$(6,000)
Activity 2
(6,000)
(1,000)
Activity 3
8,000
12,000
At the end of 2015 what is the amount of suspended loss allocated to Activity 2?
a.
$1,695
Chapter 7
b.
$1,815
c.
$5,185
d.
$5,305
e.
$7,000
a
49. Loren owns three passive activities that had the following results for the current year:
Passive Activity A
$25,000
Passive Activity B
(10,000)
Passive Activity C
(40,000)
If none of the passive activities are rental real estate activities, what is the amount of suspended loss attributable to
Activity C?
a.
$- 0 –
b.
$18,750
c.
$20,000
d.
$25,000
e.
$40,000
c
50. Linda owns three passive activities that had the following results for the current year:
Passive Activity A
$(4,500)
Passive Activity B
20,000
Passive Activity C
(25,500)
If none of the passive activities are rental real estate activities, what is the amount of suspended loss attributable to
Activity A?
a.
$- 0 –
b.
$ 1,500
c.
$ 4,500
d.
$ 8,500
e.
$10,000
51. During the current year, Diane disposes of Fine Foods Limited Partnership, at a gain of $12,000. Diane’s adjusted
gross income from non-passive sources is $120,000. She has a suspended loss from Fine Foods of $22,000, and a loss
from other passive activities of $4,500. What is the amount of Diane’s adjusted gross income for the current year?
a.
$95,550
b.
$105,500
c.
$110,000
d.
$115,500
e.
$120,000
c
52. Darien owns a passive activity that has a basis of $36,000 and a suspended loss of $22,000. If Darien dies during the
year when the passive activity has a fair market value of $52,000, how will the information be presented on his tax return?
Darien will report an ordinary loss of $6,000.
Darien will report a capital gain of $16,000.
Chapter 7
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
a
53. “Active participation” and “real estate professional” are both exceptions to the general rule for passive activity losses
with rental real estate.
A taxpayer qualifying under both exceptions is limited to a maximum annual deduction of
$25,000.
Active participation results from owning at least a 10% interest in the activity and
arranging for repairs and maintenance and collecting rents.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
54. “Active participation” and “real estate professional” are both exceptions to the general rule for passive activity losses
with rental real estate.
One of the tests that an individual must meet to qualify as a real estate professional is that
the taxpayer spends more than 50% of his/her time in real property trades or businesses.
A taxpayer with an AGI of $190,000 qualifying under the real estate professional exception
may deduct an unlimited amount of rental real estate losses.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
55. Mark has an adjusted gross income of $154,000. Not included in his adjusted gross income is a $16,000 loss from a
passive activity. Which of the following statements regarding the effect of the passive loss on his adjusted gross income
is/are correct?
If the activity does not involve rental real estate, he can only deduct the loss as a
miscellaneous itemized deduction.
If the activity is rental real estate and Mark is an active participant, he can deduct the
$16,000 loss for adjusted gross income.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
56. Rose has an adjusted gross income of $130,000. Not included in her adjusted gross income is a $15,000 loss from a
passive activity. Which of the following statements regarding the effect of the passive loss on his adjusted gross income
Chapter 7
is/are correct?
If the activity is rental real estate and Rose meets the real estate professional exception, she
can deduct the $15,000 loss for adjusted gross income.
If the activity is rental real estate and Rose is an active participant, she can deduct $5,000 of
the loss for adjusted gross income.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
a
57. Mary and Philip purchased an apartment building in January 2011, which they actively manage. During the current
year, the apartment building generates a loss of $35,000. Their other income is as follows:
Salaries
$80,000
Dividends and interest
8,000
Loss from limited partnership acquired in 2009
(4,000)
What is Mary and Philip’s adjusted gross income?
a.
$59,000
b.
$63,000
c.
$84,000
d.
$88,000
e.
None of the above.
a
58. Judy and Larry are married and their combined salaries for the current year are $115,000. They actively participate in
the rental of two houses. For the current year they have the following losses:
Income/(Loss)
Limited Partnership A
$(5,000)
Limited Partnership B
8,000
Rental house X
(5,000)
Rental house Y
(2,000)
What is Judy and Larry’s adjusted gross income?
a.
$108,000
b.
$111,000
c.
$114,000
d.
$115,000
e.
$118,000
59. Sarah owns a passive activity that has a suspended loss of $18,000. The activity has a fair market value of $35,000 and
her adjusted basis in the activity is $20,000.
If Sarah sells the activity, she is allowed to deduct the $18,000 suspended loss.
If Sarah gifts the activity, she is only be allowed to deduct $15,000 of the suspended loss.
a.
Only statement I is correct.
b.
Only statement II is correct.
Chapter 7
c.
Both statements are correct.
d.
Neither statement is correct.
60. Norris owns a passive activity that has a suspended loss of $12,000. The activity has a fair market value of $42,000
and his adjusted basis in the activity is $27,000.
If Norris gifts the property, he is allowed to deduct $3,000 of the suspended loss.
If Norris dies, none of the suspended loss is deductible.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
61. Anna owns a passive activity that has a basis of $30,000 and a suspended loss of $7,000. Anna gifts the passive
activity to her daughter Patricia when the property has a fair market value of $42,000.
Anna will report an ordinary loss of $7,000.
Patricia’s basis in the passive activity is $30,000.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
62. Which of the following events is a “casualty” loss?
Lightning damage.
Loss of the topsoil on a farm from a flood.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
63. Which of the following events is a “casualty” loss?
Diamonds stolen by thief, reported to police
Florida orange trees killed by a freeze.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
64. Mario’s delivery van is completely destroyed when a tree fell on it. Mario’s insurance company pays him $11,000 for
the accident. The van cost $20,000 three years ago. Tax depreciation deductions of $6,000 have been taken to date. The
“Blue Book value” (i.e., fair market value) of the van is $12,000 on the accident date. What is Mario’s casualty loss on the
Chapter 7
van?
a.
$- 0 –
b.
$ 1,000
c.
$ 3,000
d.
$ 8,000
e.
$13,000
c
65. In April of the current year, Speedy Printing Company’s delivery van is stolen. The van was originally purchased in
2011 for $13,000, and its fair market value at the time of the theft is $4,000. The van has a zero adjusted basis on the
books of Speedy. The previous year, Speedy dropped theft insurance on the van, so it receives no compensation for the
loss from its insurance company. What amount of loss can Speedy deduct?
a.
$- 0 –
b.
$ 4,000
c.
$10,900
d.
$12,900
e.
$13,000
a
66. Jennifer’s business storage shed is damaged by a hail storm. The shed is uninsured. Its adjusted basis is $8,000. Just
before the accident the shed is appraised for $10,000. In its damaged condition, the shed can be sold for $4,000. What is
Jennifer’s loss from the storm?
a.
$- 0 –
b.
$ 4,000
c.
$ 6,000
d.
$ 8,000
e.
$10,000
c
67. Gomez, a self-employed consultant, is involved in a traffic accident with his business-use automobile. The car is
totally destroyed and Gomez’s insurance policy reimburses him $8,000 for the fair market value of the car immediately
before the accident. His basis in the car is $11,000. What is the amount of Gomez’s casualty loss deduction?
a.
$- 0 –
b.
$ 2,000
c.
$ 3,000
d.
$ 8,000
e.
$11,000
c
68. Ford’s automobile that he uses 100% for business is vandalized. The adjusted basis before the vandalism is $3,000.
The fair market value of the car before the vandalism is $7,000, and the fair market value of the property after the
vandalism is $2,000. Ford’s insurance does not cover vandalism. What is Ford’s loss deduction for the year?
a.
$- 0 –
b.
$1,000
c.
$2,000
d.
$3,000
Chapter 7
e.
$5,000
69. Which of the following losses are generally deductible?
Loss on the sale of corporate stock.
Losses incurred in carrying on a trade or business.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
c
70. Which of the following losses are generally deductible?
Loss on the sale of a personal residence.
Loss due to the theft of business inventory.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
71. All of the following are capital assets, except
a.
Personal residence.
b.
Land used for business parking lot.
c.
Pickup truck used for personal transportation..
d.
Corporate bonds held for investment purposes.
e.
A hand-written letter by Dwight Eisenhower held in a private collection.
72. In addition to his salary, Peter realizes a $1,000 short-term capital gain and a $5,000 long-term capital loss. The net
effect of the capital asset transactions on Peter’s adjusted gross income is
a.
$-0-
b.
$1,000
c.
$(3,000)
d.
$(4,000)
e.
$(5,000)
c
73. During the current year, Terry has a short-term capital loss of $9,000 and a long-term capital gain of $3,000. Due to
these transactions Terry reports
a.
A capital loss deduction of $3,000 and a loss carryforward of $3,000
b.
A capital loss deduction of $3,000 and a loss carryforward of $6,000.
c.
A capital loss deduction of $9,000.
d.
A capital gain of $3,000 and a loss carryforward of $9,000.
e.
A capital loss deduction of $6,000