On July 24 of the current year, Sam Smith was involved in an accident with his business use automobile. Sam had purchased the car for $30,000.
The automobile had a fair market value of $20,000 before the accident and $8,000 immediately after the accident. Sam has taken $20,000 of
Write a letter to Sam that contains your advice with respect to the tax and
Trending nowThis is a popular solution!
Chapter 7 Solutions
Individual Income Taxes
- Will purchased a home for $350,000 five years ago. He did significant renovations and additions increasing the value to $425,000. He forgot to update his original policy limits of $280,000. He incurred a $100,000 loss by fire. He has a $2,500 deductible. How much will he be responsible for after accounting for the amount his insurer will pay? In other words, how much of the loss will his insurer not pay?arrow_forwardJohnny's personal-use classic Ford Mustang, for which he paid $12,000 seven years ago but now worth $20,000, was completely destroyed in a hurricane, which was declared a federal disaster. Johnny does not carry auto insurance. As a result of the hurricane, Johnny missed a business meeting and lost out on an order from which he would have earned $3,000. In that same hurricane, Johnny lost his stereo equipment worth $1,600 (purchase price $2,500), along with jewelry valued at $4,000 (purchase price $3,000). Johnny's homeowner's policy covered $5,000 of this loss. His adjusted gross income for the year is $80,000. Assuming he can itemize his deductions, calculate his deductible casualty and theft loss. Chacret aarrow_forwardOswald, while walking down the street, is hit by a reckless driver. Oswald sues the driver and recovers the following damages: $20,000 to reimburse Johnny for medical expenses previously incurred (but not previously deducted), $10,000 for pain and suffering, $5,000 for emotional distress stemming from the accident, and $2,500 in punitive damages How much of Oswald's recovery is included in gross income?arrow_forward
- This year, Amy purchased $4,200 of equipment for use in her business. However, the machine was damaged in a traffic accident while Amy was transporting the equipment to her business. Note that because Amy did not place the equipment into service during the year, she does not claim any depreciation or cost recovery expense for the equipment. a. After the accident, Amy had the choice of repairing the equipment for $2,690 or selling the equipment to a junk shop for $475. Amy sold the equipment. What amount can Amy deduct for the loss of the equipment? Deductible amountarrow_forwardRoberta was involved in an automobile accident in 2021. Her car was used 60% for business and 40% for personal use. The car had originally cost $40,000. At the time of the accident, the car was worth $20,000 and Alicia had taken $8,000 of depreciation. The car was totally destroyed and Roberta had let her car insurance expire. If her AGI is $50,000 (before considering the loss), determine her AGI and itemized deduction for the casualty loss. a.$50,000; $-0-. b.$34,000; $4,500. c.$26,000; $5,700. d.$34,000; $-0-.arrow_forwardDuring 2020, Tommy's home was burglarized. The home was in a Presidentially declared disaster area. Tommy had the following items stolen. -A block of securities worth $20,000. Tommy purchased the securities three years ago for $16,000. -A block of securities worth $30,000. Tommy purchased the securities for $24,000 two years ago. Tommy's homeowners policy had an $50,000 deductible clause for thefts. How much is Tommy's theft loss --prior to "floors" or "ceilings" based on AGI--for 2020? a. $50,000 b. $32,000 c. $40,000 d. None of thesearrow_forward
- Antonio's bank foreclosed on his retail building when he stopped making loan payments. The nonrecourse loan was secured by the building when he purchased it three years ago for $665,000. Antonio's Form 1099-A, Acquisition or Abandonment of Secured Property, indicated that the debt at the time of foreclosure was $625,000, and the fair market value (FMV) of the building was $680,000. If the building is sold for the FMV, how much of Antonio's personal assets can the bank attempt to collect to satisfy the judgment? (a) $0 (b) $20,000 (c) $40,000 (d) $60,000arrow_forwardAntonio's bank foreclosed on his retail building when he stopped making loan payments. The nonrecourse loan was secured by the building when he purchased it three years ago for $665,000. Antonio's Form 1099-A, Acquisition or Abandonment of Secured Property, indicated that the debt at the time of foreclosure was $625,000, and the fair market value (FMV) of the building was $680,000. If the building is sold for the FMV, how much of Antonio's personal assets can the bank attempt to collect to satisfy the judgment?arrow_forwardErin's bank foreclosed on her office building when she stopped making payments on her loan. The loan was secured by the building when she purchased it three years ago for $750,000. Erin's Form 1099-A is shown below. If the building is sold for the fair market value (FMV), how much of Erin's personal assets can the lender attempt to collect to satisfy the judgment? (Answer choices are below the image.) LENDER'S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no. OAK RIDGE BANK 301 AUSTIN STREET YOUR CITY, YS XXXXX (XXX) 555-5678 LENDER'S TIN XX-XXXXXXX BORROWER'S name ERIN HERNANDEZ Street address (including apt. no.) 308 VIRGINIA AVENUE CORRECTED (if checked) BORROWER'S TIN XXX-XX-XXXX Account number (see instructions) XXXXXXXX Form 1099-A (Rev. 1-2022) City or town, state or province, country, and ZIP or foreign postal code YOUR CITY, YS XXXXX (keep for your records) $615.000 $595,000 $20,000 OSO (None of Erin's personal…arrow_forward
- Noelle's diamond ring was stolen in 2017. She originally paid $15,400 for the ring, but it was worth considerably more at the time of the theft. Noelle filed an insurance claim for the stolen ring, but the claim was denied. Because the insurance claim was denied, Noelle took a casualty loss deduction for the stolen ring on her 2017 tax return. In 2017, Noelle had AGI of $77,000. After Noelle threatened legal action in early 2019, the insurance company had a "change of heart" and sent Noelle a check for $9,240 for the stolen ring. The per-event floor is $100. What is the proper tax treatment of the $9,240 Noelle received from the insurance company in 2019? Noelle should _______the amount of______.arrow_forward2. Donald owns a car repair business. Hoodlums broke into his shop at night and stole his personal vehicle, which was there being repaired. His vehicle’s FMV before being stolen was 25,000 and FMV after was zero. The cost to replace his vehicle was 19,000, which is the amount he received in insurance proceeds. Donald’s AGI is $90,000. What deduction can Donald take on his 1040 due to the break-in? 0 6000 19000 25000arrow_forwardDan sells his expensive sports car to his brother for $100. The next week, Dan files for bankruptcy under Chapter 7. Regarding the sale of the car, the trustee may 1) not cancel it, but can sue Dan's brother for return of the $100. 2) cancel it as a voidable preference. 3) not cancel it because it is a sale, not a gift. 4) cancel it as a fraudulent transfer.arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT