Question

Gabriela and Johnny are married and filed a joint tax return. They had the following items for 2018:

Salary	$103,000
Loss in sale of § 1244 small business stock acquired 3 years ago	(110,000)
Stock acquired 2 years ago became worthless during the year	(10,000)
Long-term capital gain	75,000
Non-business bad debt	(9000)

Gabriela's car was completely destroyed in a hurricane, which had been declared a federal disaster area. At the time of the hurricane, the car had a fair market value of $30,000 and an adjusted basis of $40,000. She used the car 100% of the time for personal use. She received an insurance recovery of $25,000.

1. Provide a detailed calculation of the couple's AGI.

Your Answer must:

(a) explain the rule for § 1244 small business stock and how it applies to the facts;

(b) show a detailed netting capital item;

(c) explains the rule for worthless stock;

(d) explains the rule for the tax treatment of nonbusiness bad debts.

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 schedule does the casualty loss total appear on?

Answer 1

1)Calculation shirank and claudia's adjusted gross income for 2017 shirank and claudia are MFL-Married Felling jointly $salary 183,000 Notes.

Less Long term capital loss (ordinary loss under section 1244)

section 1244 allowes loss on sale of small buisiness as a normal loss, $50,000 for individual and $100,000 for married felling jointly.

($110,000-100,000)-$10,000

Long term capital gain $25,000

Less:-stocked acquired 2years ago became worthless during the year (long term capital loss)- $10,000.

Net long term capital gain $15,000 Mr and Mrs shivank enough capital gain to deduct the capital loss.

FMV($30,000-$21,000 insurance claim)-$9,000 as per 1Rs, money reimbursed for insurance company or expected to receive needs to be deducted from the casualty loss for determining total loss from casualty, hence total loss on car is=$9,000 (FMV of car $30,000- insurance recovery $21,000)

Net capital loss $4,000

Adjusted gross income- $179,000

Note:-Non buisiness bad debt- As per IRS non business debt are not allowed as deduction in calculating AGJ, however it has provision that if the person caliming such debt shows the proof of efforts they made collect the debt then such debt are allowed as deduction in AGI, in the year it is considered as bad debts.

Note2:-Assuming car accident is not caused due to shivank's negligence are mistake, hence it is treated as unexpected or sudden damage to the propery and not classified under progressive deterioration.

2)Any casuality loss caused due to damage or loss of property from sudden, unexpected or unusual events like floods, earthquake ,hurricane etc. This excludes the wear and tear and progressive deterioration.

The casuality loss can be deducted net of any salvage value and insurance reimbursment or recovery or expected to received,such casuality losses are generally allowed to deduct in year if such event occured