Alan Rice, age 45, and his wife, Ruth, live at 230 Wood Lane,Salt Lake City, UT

Question

Alan Rice, age 45, and his wife, Ruth, live at 230 Wood Lane,Salt Lake City, UT 84201. Alan’s Social Security number is885-33-3774. Ruth’s Social Security number is 885-33-4985.Alan and Ruth are cash basis taxpayers and had the following itemsfor the year 2008:

-Salary of $80,000

- Business bad debt of $30,000 from uncollected rent.

- Sale of x 1244 stock resulting in a gain of $20,000. The stockwas acquired nine months earlier.

- Rental income of $40,000.

- Rental expenses of $28,000.

-Casualty loss on rental property of $80,000.

- Personal casualty loss (from one event) of $23,000.

- Other itemized deductions of $15,000.

-NOL carryover from 2007 of $18,000.

- Federal income tax withheld of $8,000.

Compute Alan and Ruth’s 2008 Federal income tax payable(or refund due).

Explanation / Answer

1040
:
Salary                                                                            80000 Sch D (gain onstock)                                                    20000 SchE (40000-28000)                                                   12000 :
TotalIncome                                                                112000 :
Itemized deductions(15000+91600)                         106600 : personalexemptions                                                        7000 :
TaxableIncome                                                                     0 :
FITwithheld                                                                      8000 :
Refund                                                                               8000 : :
: Sale of stock is treated as ordinary income(short term) :
we had no need to useNOL carryover......

Business bad debts are deducted against businessincome as ordinary losses. There is no annual limit on the amountof these losses. They can be claimed for wholly or partiallyworthless debts. :
Businesses using cashbasis accounting (recognizing income or deductions whenmoney is actually received or paid) cannot claim a bad debt deductionfor uncollected money resulting from the performance of services.Since the income fromthese services was nevertaken into account on the company’s books, no bad debtis allowed. : Casualty Losses: :
If business or income–producing property, such as rentalproperty, is completely destroyed, the amount of your loss is youradjusted basis in the property minus any salvage value, and minusany insurance or other reimbursement you receive or expect toreceive. : We have 2 different losses of 80000 and 23000 :
form 4684 is used and the final figure is included online 20 under casualty and theft losses........in Sch A ofitemized deductions :
there are two losses to report therefore there is 2 (100)deductions from loss amount . It is further limited by 10% ofAGI. Our AGI is 112000 therefore 10% of 11200=11200 Our total losses are: 80000+23000=103000 andthese are reduced by 11200+200=11400 which is equal to 91600 Our final amount we candeduct in Sch A :
If business or income–producing property, such as rentalproperty, is completely destroyed, the amount of your loss is youradjusted basis in the property minus any salvage value, and minusany insurance or other reimbursement you receive or expect toreceive. : We have 2 different losses of 80000 and 23000 :
form 4684 is used and the final figure is included online 20 under casualty and theft losses........in Sch A ofitemized deductions :
there are two losses to report therefore there is 2 (100)deductions from loss amount . It is further limited by 10% ofAGI. Our AGI is 112000 therefore 10% of 11200=11200 Our total losses are: 80000+23000=103000 andthese are reduced by 11200+200=11400 which is equal to 91600 Our final amount we candeduct in Sch A

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