Hope Springs, a teacher, loaned Hugh Owens, a friend, $10,000 to invest in real estate. Hugh declared bankruptcy in 2019 and cannot repay the $10,000. What is the nature of Hope’s loss? Assuming Hope has no other capital transactions, is there a limit on the amount she may deduct for 2019? Explain. c. What amount of the loss may Hope deduct in 2019 if she has a Short-Term Capital Gain of $5,000

Hope Springs, a teacher, loaned Hugh Owens, a friend, $10,000 to invest in real estate. Hugh declared bankruptcy in 2019 and cannot repay the $10,000. What is the nature of Hope’s loss? Assuming Hope has no other capital transactions, is there a limit on the amount she may deduct for 2019? Explain. c. What amount of the loss may Hope deduct in 2019 if she has a Short-Term Capital Gain of $5,000

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter16: Property Transactions: Capital Gains And Losses

Section: Chapter Questions

Problem 40P

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Joy incurs the following expenses in her business. When can she deduct the expenses if she uses the accrual method of accounting? the cash method? a. Joy rents an office building for 750 a month. Because of a cash flow problem, she is unable to pay the rent for November and December 2019. On January 5, 2019, Joy pays the 2,250 rent due for November, December, and January. b. Joy borrows 60,000 on a 1-year note on October 1, 2019. To get the loan, she has to prepay 6,200 in interest. c. Joy owes employees accrued wages totaling 20,000 as of December 31, 2019. The accrued wages are paid in the regular payroll on January 5, 2020. d. Joy purchases 2,400 worth of supplies from a local vendor. The supplies are delivered on January 29, 2019. They are fully used up on December 30, 2019. Because of unusual circumstances, a bill for the supplies arrives from the vendor on January 10, 2020, and is promptly paid. e. While at a trade convention, Joy purchases some pens and paperweights to send out as holiday gifts to her clients. She charges the 700 cost to her credit card in December 2019. She pays the credit card bill in January 2020.
Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was 52,000. He incurred the expenses in June and July 2019. Under the following circumstances, what can Terry deduct in 2019? a. Terry was in the hardware store business and did not acquire the two hardware stores. b. Terry was in the hardware store business and acquired the two hardware stores and began operating them on October 1, 2019. c. Terry did not acquire the two hardware stores and was not in the hardware store business. d. Terry acquired the two hardware stores but was not in the hardware store business when he acquired them. Operations began on October 1, 2019.
Jed, age 55, is married with no children. During 2019, Jed had the following income and expense items: a. Three years ago, Jed loaned a friend 10,000 to help him purchase a new car. In June of the current year, Jed learned that his friend had been declared bankrupt and had left the country. There is no possibility that Jed will ever collect any of the 10,000. b. In April of last year, Jed purchased some stock for 5,000. In March of the current year, the company was declared bankrupt, and Jed was notified that his shares of stock were worthless. c. Several years ago Jed purchased some 1244 stock for 120,000, This year he sold the stock for 30,000. d. In July of this year, Jed sold some land that he had held for two years for 60,000. He had originally paid 42,000 for the land. e. Jed received 40,000 of interest income from State of Minnesota bonds. f. In September, Jeds home was damaged by an earthquake; Jeds county was declared a Federal disaster area by the President. Jeds basis in his home was 430,000. The value of the home immediately before the quake was 610,000. After the quake, the home was worth 540,000. Because earthquake damage was an exclusion on Jeds homeowners insurance policy, he received no insurance recovery. g. Jed received a salary of 80,000. h. Jed paid home mortgage interest of 14,000. i. If Jed files a joint return for 2019, determine his NOL. for the year.
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