Taxes: Deductions - Losses and Bad Debts

Question 1

Taxes:
Deductions - Losses and Bad Debts
Losses

Answer 1

Losses:
- losses on business assets can be deducted
- losses on personal assets cannot unless personal casualty
- part business/part personal treated as two separate assets
Worthless Securities
- totally worthless
- treated as if sold for nothing on last day of year
- character is usually capital
- except corporate investments in 80% owned affiliate, then OL

Question 2

Taxes:
Deductions - Losses and Bad Debts
Bad Debts

Answer 2

Bad Debts

• only use direct writeoff ,method
• loans to extent partially worthless
• nonbusiness bad debts also deductible
  
  • whether disguised gift depends on interest charged
  • deductible as STCL in year completely worthless

Question 3

Taxes:
Deductions - Losses and Bad Debts
Limitations on Deduction of Losses

Answer 3

Limitations on Deduction of Losses

• not section 1231 or investment assets subject to capital asset rules
• if losses > gains = limit $3,000 for individuals
• special rules for section 1244 capital stock

Question 4

Taxes:
Deductions - Losses and Bad Debts
Net Operating Losses

Answer 4

Net Operating Losses

• back 2 and forward 20
• only business and casualty loss