Chapter 8 MC

Question 1

Which of the following statements concerning the deductibility of bad debts is correct?

Answer 1

A nonbusiness bad debt can be deductible only as a short-term capital loss.
The answer is (D). (A) is incorrect because in a family situation the guarantor of a loan is not acting in the course of his or her trade or business. (B) is incorrect because a legal (enforceable) debt is a prerequisite to the deduction. (C) is incorrect because a taxpayer may take a deduction for partial worthlessness if the debt is a business bad debt and the circumstances warrant it.

Question 2

All the following statements concerning the deductibility of casualty losses are correct EXCEPT

Answer 2

(C) Individuals are generally allowed a deduction for mislaid property.
The answer is (C). Mislaid property generally does not give rise to a deductible loss.

Question 3

To determine adjusted gross income, all the following are potentially deductible, in whole or in part, from gross income EXCEPT

Answer 3

charitable contributions of individuals
The answer is (B). Charitable contributions are deductible, with certain limitations, from adjusted gross income (not gross income) in determining taxable income. The other expenses listed are deductible from gross income in determining adjusted gross income.

Question 4

Individual taxpayers can deduct all the following types of losses EXCEPT

Answer 4

personal losses that arise from the gradual wearing out of property held for personal use
The answer is (D). The wearing out of property held for personal use does not give rise to a tax deduction.