2- Ron sell his business accounts receivable of $100,000 to Mike for $70,000 (70% of the actual accounts receivable). Mike later determines that he will be able to collect only $6,000 $10,000 receivable. Discuss the amount and classification of Mike's bad debt deduction.
10- Jim discovers that his residence has extensive termite damage. Discuss whether he may take a deduction for the damage to his residence.
18- Hazel sustained a loss on the theft of a painting. She had paid $50,000 for the painting, but it was worth $40,000 at the time of the theft. Evaluate the tax consequences of treating the painting as investment property or as personal use property.
22- Green Corporation made extensive modifications to a portion of a building so that it could be used to conduct product research. Discuss whether the modification costs would qualify as research and experimental expenditures.
27- Discuss whether deductions for AGI can be treated as nonbusiness deductions in computing an individual NOL.
31- Mable and Jack file a join return. For the current year, they had the following items:
Salaries $120,000
Loss on sale of 1244 stock acquired two years ago $105,000
Gain on sale of 1244 stock acquired six months ago $20,000
Nonbusiness bad debt $19,000
Determine their AGI for the current year.
32- Mary, a single taxpayer, purchased 10,000 shares of 1244 stock several years ago at a cost of $20 per share. In November of the current year, Mary received an offer to sell the stock for $12 per share. She has the option of either selling all of the stock now or selling half of the stock now and half of the stock in January of next year. Mary will receive a salary of $80,000 for the current year and $90,000 next year. Mary will have long-term capital gains of $8,000 for the current year and $10,000 next year. If Mary's goal is to minimize her AGI for the two years, determine whether she should sell all of her stock this year of half of her stock this year and half next year.
34- Alaf owns a 500-acre farm in Minnesota. A tornado hit the area and destroyed a farm building and some farm equipment and damaged a barn. Fortunately for Olaf, the tornado occurred after he had harvested his corn crop. Applicable information is as follow:
Item Adjusted FMV before FMV after Insurance
Basis Proceeds
Building $90,000 $70,000 $-0- $ 70,000
Equipment 40,000 50,000 -0- 25,000
Barn 90,000 120,000 70,000 25,000
Olaf, who files a joint return with his wife, Anna, had $174,000 of taxable income last year. Their taxable income for the current year, excluding the loss from the tornado, is $250,000.
35- Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2012, a fire caused major damage to the building and its contents. Heather purchased the building for $80,000 and has taken depreciation of $100,000 on the business portion. At the time of the fire, the building had a fair market value of $90,000 on the business. Immediately after the fire, the fair market value was $200,000. The insurance recovery on the building was $600,000. The contents of the building were insured for any loss at fair market value. The business assets had an adjusted basis of $220,000 and a fair market value of $175,000. These assets were totally destroyed. The personal use assets had an adjusted basis of $ 50,000 and a fair market value of $65,000. These assets were also totally destroyed. If Heather's AGI is $100,000 before considering the effects of the fire, determine her itemized deduction as a result of the fire. Also, determine Heather's AGI.
42- In 2012, Rose, Inc., has QPAI of $4 million and taxable income of $3 million. Rose pays independent contractors $500,000. Rose's W-2 wages are $600,000 but only $400,000 of the wages are paid to employees engaged in qualified domestic production activities.
a- Calculate the DPAD for Rose, Inc., for 2012.
b- What suggestions could you make to enable Rose to increase its DPAD?