64 terms

Tax - Chapter 7

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James is in the business of debt collection. He purchased a $20,000 account receivable from Green Corporation for $15,000. During the year, James collected $17,000 in final settlement of the account. James can take a $2,000 bad debt deduction in the current year.
a. True
b. False
ANSWER: False
RATIONALE: James has a basis of $15,000 in the account receivable and hence, he has income of $2,000.
If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year.

a. True
b. False
ANSWER:
True
Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income.
a. True
b. False
ANSWER: False
RATIONALE: The taxpayer must include the $10,000 in gross income to the extent of the tax benefit received last year. The entire $10,000 deduction provided a tax benefit; $8,000 offset by the short-term capital gain and $2,000 offset against ordinary income.
A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

a.
True

b.
False
ANSWER:
True
If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

a.
True

b.
False
ANSWER:
True
A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.
a. True
b. False
ANSWER: False
RATIONALE: The deduction can only be taken in the year the debt becomes totally worthless.
A business bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.

a.
True

b.
False
ANSWER:
False
In determining whether a debt is a business or nonbusiness bad debt, the debtor's use of the borrowed funds is important.
a. True
b. False
ANSWER: False
RATIONALE: The use of the funds by the debtor is of no consequence in making the determination. The determination is made at the creditor level.
A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.
a. True
b. False
ANSWER: False
RATIONALE: The nonbusiness bad debt provisions do not apply to corporations.
A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

a.
True

b.
False
ANSWER:
True
The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.
a. True
b. False
ANSWER: False
RATIONALE: A taxpayer is entitled to deduct the net amount of the loss only upon final settlement of the debt.
A bona fide debt cannot arise on a loan between father and son.
a. True
b. False
ANSWER: False
RATIONALE: A bona fide debt arises from a debtor-creditor relationship based on a valid and enforceable obligation to pay a fixed sum of money regardless of the relationship of the parties.
A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss.

a.
True

b.
False
ANSWER:
True
A loss from a worthless security is always treated as a short-term capital loss.
a. True
b. False
ANSWER: False
RATIONALE: The last day treatment increases the likelihood that the capital loss will be classified as long term, but is not automatic. So the capital loss could be either short term or long term.
A loss is not allowed for a security that declines in value.
a. True
b. False
ANSWER: True
RATIONALE: A loss is allowed for securities that become completely worthless during the tax year.
Several years ago, John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000. Last year, John sold one-half of his Red Corporation stock to Mike for $12,000. During the current year, John sold the remaining Red Corporation stock for $3,000. John has a $17,000 ($3,000 - $20,000) ordinary loss for the current year.
a. True
b. False
ANSWER: False
RATIONALE: John did not buy the stock from Red Corporation, and therefore, it is not § 1244 stock to him. John has a $17,000 long-term capital loss.
. If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.
a. True
b. False
ANSWER: False
RATIONALE: Ordinary loss treatment is limited to $50,000 per year for single taxpayers and $100,000 per year for married filing jointly taxpayers.
Al, who is single, has a gain of $40,000 on the sale of § 1244 stock (small business stock) and a loss of $80,000 on the sale of § 1244 stock. As a result, Al has a $40,000 ordinary loss.
a. True
b. False
ANSWER: False
RATIONALE: The $40,000 gain on the sale of the § 1244 stock is classified as a capital gain. The $80,000 loss on the sale of the § 1244 stock is classified as an ordinary loss to the extent of $50,000. The balance of the § 1244 stock loss of $30,000 is classified as a capital loss. Therefore, Al has capital gain net income of $10,000 ($40,000 - $30,000).
An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss.
a. True
b. False
ANSWER: True
RATIONALE: Only an individual's loss on personal use property must meet the definition of a casualty to be deductible.
"Other casualty" means casualties similar to those associated with fires, storms, or shipwrecks.

a. True
b. False
ANSWER:
True
A father cannot claim a loss on his daughter's rental use property.

a. True
b. False
ANSWER:
True
The current position of the IRS is that a personal casualty loss deduction is not allowed for losses resulting from termites.

a. True
b. False
ANSWER:
True
If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than it's adjusted basis, a gain is recognized.
a. True
b. False
ANSWER: False
RATIONALE: Loss is recognized if the amount of the insurance recovery is less than the asset's adjusted basis.
A theft loss is taken in the year of the theft.
a. True
b. False
ANSWER: False
RATIONALE: A theft loss is taken in the year of discovery.
Last year, Amos had AGI of $50,000. Amos also had a diamond ring stolen which cost $20,000 and was worth $17,000 at the time of the theft. He itemized deductions on last year's tax return. In the current year, Amos recovered $17,000 from the insurance company. Therefore, he must include $11,900 in gross income on the tax return for the current year.
a. True
b. False
ANSWER: True
RATIONALE: The reimbursement need only be included to the extent the previous deduction resulted in a tax benefit. The benefit was $11,900 [$17,000 - $100 - (10% × $50,000)].
If investment property is stolen, the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.
a. True
b. False
ANSWER: False
RATIONALE: The amount of the loss is not subject to the $100 and 10%-of-AGI limitations.
The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.
a. True
b. False
ANSWER: False
RATIONALE: Under certain circumstances, the cost of repairs to damaged property may be an acceptable measure of the loss in value of the property.
Taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area. If the taxpayer elects to treat the loss as having occurred in the prior year, it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.
a. True
b. False
ANSWER: False
RATIONALE: The loss will be subject to the 10%-of-AGI reduction based on the AGI of the prior year.
The amount of loss for partial destruction of business property is the decline in fair market value of the business property.
a. True
b. False
ANSWER: False
RATIONALE: The amount of the loss is the lesser of the adjusted basis or the decline in fair market value of the property.
. If personal casualty gains exceed personal casualty losses (after deducting the $100 floor), there is no itemized deduction.

a.
True

b.
False
ANSWER:
True
The amount of a loss on insured personal use property is reduced by the insurance coverage if no claim is made against the insurer.

a.
True

b.
False
ANSWER:
True
Losses on rental property are classified as deductions for AGI.

a.
True

b.
False
ANSWER:
True
When a nonbusiness casualty loss is spread between two taxable years, the loss in the second year is reduced by 10% of adjusted gross income for the first year.
a. True
b. False
ANSWER: False
RATIONALE: The loss in the second year is reduced by 10% of AGI for the second year.
A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.
a. True
b. False
ANSWER: True
RATIONALE: A theft loss is a separately stated item on Schedule A of Form 1040. It is not subject to the 2%-of-AGI floor.
Research and experimental expenditures do not include the cost of consumer surveys.

a. True
b. False
ANSWER:
True
The cost of depreciable property is not a research and experimental expenditure.

a. True
b. False
ANSWER:
True
If an election is made to defer deduction of research expenditures, the amortization period is based on the expected life of the research project if less than 60 months.
a. True
b. False
ANSWER: False
RATIONALE: The amortization period is not less than 60 months regardless of the life of the research project.
The domestic production activities deduction (DPAD) for a sole proprietor is calculated by multiplying a percentage rate (currently 9%) times adjusted gross income.
a. True
b. False
ANSWER: False
RATIONALE: For a sole proprietor, modified adjusted gross income is used for the DPAD calculation.
If qualified production activities income (QPAI) cannot be used in the calculation of the domestic production activities deduction because of the taxable income limitation, the product of the amount not allowed multiplied by the DPAD percentage rate (currently 9%) can be carried over for 5 years.
a. True
b. False
ANSWER: False
RATIONALE: In this case, any amount not allowed is lost forever.
The limit for the domestic production activities deduction (DPAD) uses all W-2 wages paid to employees by the taxpayer during the tax year.
a. True
b. False
ANSWER: False
RATIONALE: The 50% limit is for W-2 wages paid only to employees engaged in qualified domestic production activities.
A taxpayer can carry any NOL incurred forward up to 20 years.
a. True
b. False
ANSWER: True
RATIONALE: A taxpayer can elect to forgo the carryback period and only carry the NOL forward.
A farming NOL may be carried back 2 years.
a. True
b. False
ANSWER: True
RATIONALE: A taxpayer can elect to waive the 5-year carryback period for a farming NOL and then the general 2-year carryback period is applicable.
Peggy is in the business of factoring accounts receivable. Last year, she purchased a $30,000 account receivable for $25,000. This year, the account was settled for $25,000. How much loss can Peggy deduct and in which year?
a. $5,000 for the current year.
b. $5,000 for the prior year and $5,000 for the current year.
c. $5,000 for the prior year.
d. $10,000 for the current year.
e. None of the above.
ANSWER: e
RATIONALE: Peggy's basis in the debt is $25,000. Therefore, her loss for the current year is $0 ($25,000 - $25,000).
Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement. Jed was able to collect the judgement but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?
a. $0
b. $2,000
c. $3,000
d. $5,000
e. None of the above
ANSWER: c
RATIONALE: Jed is an accrual basis taxpayer and therefore, has a basis in the $3,000 not collected.
. On June 2, 2015, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000. Fred's TV Sales uses the accrual method. In 2016, when the balance on the account was $8,000, Mark filed for bankruptcy. Fred was notified that he could not expect to receive any of the amount owed to him. In 2017, final settlement was made and Fred received $1,000. How much bad debt loss can Fred deduct in 2017?

a.
$0

b.
$7,000

c.
$8,000

d.
$12,000

e.
None of the above
ANSWER:
a
RATIONALE:
This debt is a business debt. Therefore, partial worthlessness can be recognized in 2016. The loss in 2016 would be $8,000. In 2017, the account has been written down to zero and hence, the collection of $1,000 would produce a $1,000 ($1,000 - $0) gain rather than a loss.
Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $8,000 long-term capital gain last year. Her taxable income for last year was an NOL of $15,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?
a. $0 income
b. $8,000 income
c. $11,000 income
d. $12,000 income
e. None of the above
ANSWER: b
RATIONALE: Nonbusiness bad debts are treated as short-term capital losses. Hence, the $20,000 bad debt can offset the $8,000 of long-term capital gains. Because Mary has an NOL, she cannot use $3,000 of the remaining loss to offset any ordinary income. Therefore, the tax benefit was only $8,000 and $8,000 would be recognized as income.
Last year, Lucy purchased a $100,000 account receivable for $90,000. During the current year, Lucy collected $97,000 on the account. What are the tax consequences to Lucy associated with the collection of the account receivable? No subsequent collections are expected.
a. $0
b. $2,000 gain
c. $3,000 loss
d. $13,000 loss
e. None of the above
ANSWER: e
RATIONALE: The amount collected is $7,000 ($97,000 - $90,000) more than Lucy's basis in the receivable.
Two years ago, Gina loaned Tom $50,000. Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance. Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note. As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000. As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt. Last year, Gina had AGI of a negative $6,000 which included $5,000 net long-term capital gains and $4,000 of qualified dividends. Gina did not itemize her deductions. During the current year, Tom paid Gina $13,000 in final settlement of the loan. How should Gina account for the payment in the current year?
a. File an amended tax return for last year.
b. Report no income for the current year.
c. Report $8,000 of income for the current year.
d. Report $12,000 of income for the current year.
e. None of the above.
ANSWER: e
RATIONALE: Income should be reported based on the tax benefit rule. The tax benefit was $5,000.
Five years ago, Tom loaned his son John $20,000 to start a business. A note was executed with an interest rate of 8%, which is the Federal rate. The note required monthly payments of the interest with the $20,000 due at the end of ten years. John always made the interest payments until last year. During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Tom is an accrual basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is:

a. No deduction.
b. $3,000 deduction.
c. $20,000 deduction.
d. $21,800 deduction.
e. None of the above.
ANSWER:
b
RATIONALE:
This is a bona fide loan to his son; therefore, Tom is entitled to a bad debt of $21,800 ($20,000 + $1,800; a deduction is allowed for the $1,800 of accrued interest receivable because Tom is an accrual basis taxpayer). The deduction for the current year is limited to $3,000, since the bad debt is classified as a short-term capital loss.
. Three years ago, Sharon loaned her sister $30,000 to buy a car. A note was issued for the loan with the provision for monthly payments of principal and interest. Last year, Sharon purchased a car from the same dealer, Hank's Auto. As partial payment for the car, the dealer accepted the note from Sharon's sister. At the time Sharon purchased the car, the note had a balance of $18,000. During the current year, Sharon's sister died. Hank's Auto was notified that no further payments on the note would be received. At the time of the notification, the note had a balance due of $15,500. What is the amount of loss, with respect to the note, that Hank's Auto may claim on the current year tax return?
a. $0
b. $3,000
c. $15,500
d. $18,000
e. None of the above
ANSWER: c
RATIONALE: This is a business bad debt for Hank's Auto and therefore, the loss is $15,500.
On September 3, 2015, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000. On December 31, 2015, the stock was worth $85,000. On August 15, 2016, Able was notified that the stock was worthless. How should Able report this item on his 2016 tax return?
a. $85,000 capital loss.
b. $85,000 ordinary loss.
c. $50,000 ordinary loss and $35,000 capital loss.
d. $60,000 ordinary loss.
e. None of the above.
ANSWER: e
RATIONALE: The loss of $60,000 is classified as a $60,000 capital loss because the stock is not § 1244 stock to Able.
On February 20, 2015, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2016, the stock became worthless. During 2016, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2016 tax return?

a.
$4,000 long-term capital loss and $9,000 short-term capital loss.

b.
$4,000 long-term capital loss and $3,000 short-term capital loss.

c.
$8,000 ordinary loss and $3,000 short-term capital loss.

d.
$8,000 ordinary loss and $5,000 short-term capital loss.

e.
$8,000 long-term capital loss and $6,000 short-term capital loss.
ANSWER:
c
RATIONALE:
Ordinary loss (small business stock) ($8,000)
Long-term capital gain $5,000
Less long-term capital loss (worthless securities) (1,000)
Net long-term capital gain $4,000
Less short-term capital loss (nonbusiness bad debt) (9,000)
Net short-term capital loss ($5,000)
Short-term capital loss limited to ($3,000)
John files a return as a single taxpayer. In 2016, he had the following items:

∙ Salary of $40,000.
∙ Loss of $65,000 on the sale of § 1244 stock acquired two years ago.
∙ Interest income of $6,000.

Determine John's AGI for 2016.
a. ($5,000).
b. $0.
c. $45,000.
d. $51,000.
e. None of the above.
ANSWER: b
RATIONALE: Salary $40,000
Interest income 6,000
Ordinary loss (§ 1244 ordinary loss) (50,000)
AGI $ -0-

$15,000 ($65,000 - $50,000) is long-term capital loss. Of this amount, no loss can be used because there is no ordinary income. $15,000 will be carried forward.
On July 20, 2015, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000. On November 10, 2015, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000. On September 15, 2016, Matt sold the 4,000 shares of stock for $120,000. How should Matt treat the sale of the stock on his 2016 return?
a. $54,000 ordinary loss.
b. $100,000 ordinary loss; $46,000 net capital gain.
c. $100,000 ordinary loss; $20,000 STCL.
d. $130,000 ordinary loss; $66,000 LTCG.
e. None of the above.
ANSWER: e. None of the above.
RATIONALE: Amount realized (1,000 shares × $30 per share) $ 30,000
Less: basis (150,000)
Recognized loss ($120,000)

STCL ($120,000)

The stock is not § 1244 stock because it was not purchased from the corporation.

Amount realized (3,000 shares × $30 per share) $ 90,000
Less: basis (24,000)
Recognized gain (LTCG) $ 66,000

Hence, Matt has a $54,000 STCL ($120,000 - $66,000).
Which of the following events would produce a deductible loss?

a.
Erosion of personal use land due to rain or wind.

b.
Termite infestation of a personal residence over a several year period.

c.
Damages to personal automobile resulting from a taxpayer's willful negligence.

d.
A misplaced diamond ring.

e.
None of the above.
ANSWER:
e
RATIONALE:
A "theft" does not include misplaced or lost items.
Jim had a car accident in 2016 in which his car was completely destroyed. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for business use. Jim received an insurance recovery of 70% of the value of the car at the time of the accident. If Jim's AGI for the year is $60,000, determine his deductible loss on the car.
a. $900
b. $2,900
c. $3,000
d. $9,000
e. None of the above
ANSWER: e. None of the above

RATIONALE: The car is used for business use and hence, the amount of the loss is $40,000 (adjusted basis) reduced by the insurance recovery ($21,000). The $19,000 loss is not subject to the $100 floor per event and the 10%-of-AGI limitation. So the loss is $19,000.
Norm's car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2016. The car's adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm's deductible loss?
a. $0
b. $100
c. $500
d. $9,500
e. None of the above
c. $500

Amount (lesser of adjusted basis or FMV decline) $10,000
Less: Insurance recovery as if the claim had been filed (8,000)
Statutory floor (100)
AGI limitation (10% × $14,000) (1,400)
Deductible loss $ 500

The loss is permitted for the uninsured portion of the casualty.
In 2016, Grant's personal residence was completely destroyed by fire. Grant was insured for 100% of his actual loss, and he received the insurance settlement. Grant had adjusted gross income, before considering the casualty item, of $30,000. Pertinent data with respect to the residence follows:

Cost basis $280,000
Value before casualty 250,000
Value after casualty -0-
What is Grant's allowable casualty loss deduction?
a. $0
b. $6,500
c. $6,900
d. $10,000
e. $80,000
a: 0
The proceeds received are $250,000. Therefore, Grant has no casualty gain or a casualty loss.
John had adjusted gross income of $60,000. During the year his personal use summer home was damaged by a fire. Pertinent data with respect to the home follows:

Cost basis $260,000
Value before the fire 400,000
Value after the fire 100,000
Insurance recovery 270,000

John had an accident with his personal use car. As a result of the accident, John was cited with reckless driving and willful negligence. Pertinent data with respect to the car follows:
Cost basis $80,000
Value before the accident 56,000
Value after the accident 20,000
Insurance recovery 18,000

What is John's itemized casualty loss deduction?
a. $0
b. $2,000
c. $17,000
d. $18,000
e. None of the above
a: 0

Gain on home ($260,000 - $250,000) = $10,000.
John has no itemized casualty loss deduction because casualty gains exceed casualty losses. There is no casualty loss on the car because the accident was the result of willful negligence.
In 2016, Theo, an employee, had a salary of $30,000 and experienced the following losses:

Loss from damage to rental property
($10,000)
Unreimbursed loss from theft of business computer (5,000)
Personal casualty gain 4,000
Personal casualty loss (after $100 floor) (9,000)

Determine the amount of Theo's itemized deduction from these losses.

a. $0
b. $2,800
c. $2,900
d. $4,580
e. None of the above
e. none of the above

Salary $30,000
Rental loss (10,000)
Personal casualty gain $4,000
Personal casualty loss (4,000)
-0-
AGI $20,000

The loss on the theft of the business computer is a miscellaneous itemized deduction which is subject to the 2%-of-AGI floor.
Loss on theft [$5,000 - (2% × $20,000)] $4,600
Casualty loss in excess of casualty gain ($9,000 - $4,000)
$5,000 Less: 10% × $20,000 (AGI) (2,000) 3,000
Total itemized deduction $ 7,600
In 2015, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home. Sarah's insurance company told her that her policy did not cover the theft. Sarah's other itemized deductions last year were $2,000. She had AGI of $30,000 last year. In August of 2016, Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000. Determine the tax treatment of the $5,000 received by Sarah during 2016.

a. None of the $5,000 should be included in gross income.
b. $2,900 should be included in gross income.
c. $5,000 should be included in gross income.
d. Last year's return should be amended to include the $5,000
e. None of the above.
a. None of the $5,000 should be included in gross income.

Sarah would have taken a casualty loss of $2,900 ($6,000 - $100 - $3,000) in 2015. Therefore, the total itemized deductions would be $4,900 ($2,900 + $2,000). Because this is less than the 2015 standard deduction of $6,300 for single taxpayers, Sarah would have taken the standard deduction. Hence, none of the $5,000 would be included in gross income under the tax benefit rule.
Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. Alma has adjusted gross income for the year of $40,000 (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year.
a. $3,750
b. $14,650
c. $14,750
d. $18,750
e. None of the above
d. $18,750

Amount of loss (adjusted basis for business property that is completely destroyed) $90,000
Less: Insurance proceeds received ($75,000 × 95%) (71,250)
Business loss $18,750

A business casualty loss is classified as an ordinary loss.
Regarding research and experimental expenditures, which of the following are not qualified expenditures?

a. Costs of ordinary testing of materials.
b. Costs to develop a plant process.
c. Costs of developing a formula.
d. Depreciation on a building used for research.
e. All of the above are qualified expenditures.
a.
Costs of ordinary testing of materials.
Roger, an individual, owns a proprietorship called Green Thing. For the year 2016, Roger has the following items:

∙ Business income—$200,000.
∙ Business expense—$150,000.
∙ Loss on a completely destroyed business machine. The machine had an adjusted basis of $25,000 and a fair market value of $20,000.
∙ Loss on a business truck. The truck had an adjusted basis of $8,000. The repairs to fix the truck cost $10,000.

Determine Roger's adjusted gross income for 2016.
Business income $200,000
Business expense (150,000)
Loss on business machine (25,000)
Loss on business truck (8,000)
Adjusted gross income $ 17,000