Shivank and Claudia are MFL and had the following items for 2017 Salary Loss on

Question

Shivank and Claudia are MFL and had the following items for 2017 Salary 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 $183,000 (110,000) (10,000) 25,000 (9,000) Nonbusiness bad debt Shivank had a car accident during the year in which his car was completely destroyod. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of$40,000. He used the car l00% of the time for personal use. He received an insurance recovery of $21,000 I. Provide a detailed calculation of the couple's AGI. Your answer should also include any applicable rules, exceptions to rules, limitations, tax treatment of all items that have an *next to them 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 loss. (c) Which schedules do the loss appcar on? Attach a blank copy of the schodules to your answer

Explanation / Answer

1.Detailed calculation of couple's AGI :

* 1244 loss:

Under section 1244, losses that would otherwise be treated as capital losses are treated as ordinary losses.

The maximum 1244 loss that can be taken in any year is:

Non business bad debt* :

Taxpayers must treat nonbusiness bad debts as losses from the sale or exchange of a short-term capital asset and can deduct the debt only for the year in which thedebt becomes wholly worthless. However, business debts are ordinary losses that can offset ordinary income.

2. Rule for casual loss :

A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn't include normal wear and tear or progressive deterioration.

If your property is personal-use property or isn't completely destroyed, the amount of your casualty loss is the lesser of:

B) Application of rule :

Fair market value of property = FMV of property MINUS Insurance recovery

= $30000 - $21000

= $9000

Casual loss = Adjusted basis value or Fair market value whichever is less

= $ 40000 or $ 9000 less

= $ 9000

C) Form for casual loss

Casual loss is generally reported in Form 4684 and Schedule A (Form 1040).

Particulars Amount Salary $ 183000 Capital gain $ 25000 Less: Loss from small business stock * 1244 ($ 100000) Less: Non business debt ($ 9000) Less: worthless stock ($ 10000) Total $ 89000

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