Chapter 603 7 Deductions TB

Chapter 603 7 Deductions TB - Chapter 603 7 Deductions:...

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Chapter 603 7 Deductions: Business/Investment Losses and Passive Activity Losses TRUE- FALSE QUESTIONS CHAPTER 7 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. Practically all tax shelters were formed as limited partnerships. Portfolio income is interest, dividends, annuities, and royalties derived in the ordinary course of a trade or business. The passive loss limitations apply to individuals, closely held corporations, and personal service corporations, but not to estates and trusts. A working interest which a taxpayer holds in oil and gas properties is not subject to the passive activity rules. An individual is allowed to avoid the passive loss limitations for all rental real estate activities in which the individual actively participates. All casualty and theft losses are deductible if incurred in a trade or business or in connection with an investment. A deduction resulting from the partial destruction of business property is limited to the lesser of (1) the adjusted basis of the casualty property, or (2) the decline in fair market value of the casualty property. If two or more net operating losses are carried back to a tax year, they must be deducted in the order they were incurred. The deduction for hobby expenses is not subject to the two-percent oor on miscellaneous itemized deductions. Exclusive use of a portion of a home for business purposes is required to qualify for a business use of home deduction. An investor is not at risk for nonrecourse borrowings, stop-loss arrangements, no-loss guarantees, or borrowings in which the lender has an interest. The gain from the sale of property that produces portfolio income (e.g., stocks and bonds) is classi ed as passive income. In determining whether a taxpayer materially participates, the participation of a taxpayer s spouse will be taken into account. A business incurring a net operating loss in a taxable year can carry the loss back two years and forward 15 years. In determining whether an activity is engaged in for pro t, a reasonable expectation of pro t is required. Disaster area losses are carried forward for an additional ve years beyond ordinary casualty losses. Jim Jones had a deductible casualty loss of $10,000 on his 2009 tax return. His taxable income was $112,000 in 2009. In September of 2010, Jim is reimbursed $5000 for the prior year s casualty loss. He should include the $5000 in gross income for 2010. When business property is completely destroyed, the loss is equal to the difference between the fair market value of the property before the event and the fair market value immediately after the event. Insurance proceeds received in the year of the casualty in a business casualty loss ,do not reduce the amount of the loss. There are seven speci c categories of domestic production gross receipts that qualify for the quali ed production activities income. The manufacturing deduction under Code Section 199 is only available to C corporations and cooperatives. The Code Section 199
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Chapter 603 7 Deductions TB - Chapter 603 7 Deductions:...

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