Gabriela is single and had the following items for 2017: Salary $103,000 (110,00
ID: 2519001 • Letter: G
Question
Gabriela is single and had the following items for 2017: Salary $103,000 (110,000) (10,000) 75,000 (9,000) Loss on sale of 1244 small business stock acquired 3 years ago* Stock acquired 2 years ago became worthless during the year* Long-term capital gain Nonbusiness bad debt* abriela had a car accident during the year in which her car was completely destroyed. At the time of the accident, the car had a fair market value of $40,000 and an adjusted basis of $30,000. She used the car 100% of the time for personal use. She received an insurance recovery of $20,000. 1. Provide a detailed calculation of the couple's AGI. Your answer must: (a) explain the rule for S 1244 small business stock and how it applies to the facts; (b) show a detailed netting of capital items; (c) explain the rule for worthless stock; (d) explain the rule for the tax treatment of nonbusiness bad debts 2. (a) What is the rule for calculating the amount of the casualty loss? (b) Apply the rule to the facts and show a detailed calculation of the los (c) Which schedule does the casualty loss appear on?Explanation / Answer
Ans:
1) Calculation Shivank and Claudia's adjusted gross income for 2017
Shivank and Claudia are MFL - Married filling jointly
Salary $183,000 Notes
Less long term capital loss (ordinary loss under section 1244) * Section 1244 allowes loss on sale of small business as a normal loss, $50,000 for individual and $100,000 for married filling jointly
($110,000-$100,000) -$10,000
Long term capital Gain $25,000
Less: Stock acquired 2 years ago became worthless during the year (long term capital loss) * -$10,000
Net long term capital gain $15,000 Mr and Mrs Shivank had enouogh capital gain to deduct the capital loss
(FMV $30,000-$21,000 Insurance claim) * -$9,000 As per IRS, money reimbursed from insurance company or expected to receive needs to be deducted from the casualty loss for determining total loss from casualty, hence total loss on car is = $9,000 (FMV of car $30,000 -insurance recovery $21,000)
Net capital Loss -$4,000
Adjusted gross income $179,000
Note 1: Non business bad debt - As per IRS non business debt are not allowed as deduction in calculating AGI, however it has provision that if the person claiming such debt shows the proof of efforts they made to collect the debt then such debt are allowed as deduction in AGI, in the year it is considered as bad debts.
Note 2: Assuming car accident is not caused due to Shivank's negligence or mistake, hence it is treated as unexpected or sudden damage to the property and not classified under progressive deterioration.
2) Any casualty loss caused due to damage or loss of property from sudden, unexpected or un usual events like floods, earth quake, hurricane etc. This excludes the wear and tear and progressive deterioration.
The casualty loss can be deducted net of any salvage value and insurance reimbursement or recovery or expected to receive, such casualty losses are generally allowed to deduct in year if such event occurred.
1) In case one question with multiple subparts, only first 4 subparts needs be answered as a mandatory requirement and
2) In case of multiple questions only first question (full) with minimum 4 sub parts (in case of more sub parts) needs to be answered as a mandatory requirement.
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