Scribd
Upload
7 views2 pages

BP - Problem 10

The document outlines a series of tax problems related to Section 165 of the Internal Revenue Code, focusing on casualty and theft loss deductions. It highlights the changes brought by the 2017 TCJA and provides specific scenarios for analysis, including net losses, stock sales, and casualty losses. Students are instructed to solve problems based on the statute and accompanying text, with a review planned for class discussion.

Uploaded by

wrapper40moronic
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
7 views2 pages

BP - Problem 10

The document outlines a series of tax problems related to Section 165 of the Internal Revenue Code, focusing on casualty and theft loss deductions. It highlights the changes brought by the 2017 TCJA and provides specific scenarios for analysis, including net losses, stock sales, and casualty losses. Students are instructed to solve problems based on the statute and accompanying text, with a review planned for class discussion.

Uploaded by

wrapper40moronic
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

St.

John’s University School of Law

Basic Federal Income Tax

Prof. Todres

Problem 10: Section 165.

Note: The 2017 TCJA dramatically reduced the applicability of the casualty and theft
loss deduction (~165(c)(3) & (h)). However, due to its historical importance (pre-2018 audits and
litigation), its limited applicability from 2018-25, and its scheduled resurrection in 2026, we will
be reviewing this provision, though briefly. Please do problems 8 to 13 below based only on the
statute and the text. We will review these problems briefly in class.

Code §~ 165(a)-(f), (g)(1)-(2), & (h)(lightly), 261, 262, 263(a), 267(a)(1) & 461(1)(1)
& (3)(A). Skim §~ 267(b), 465(a)(1) (2), (b)(1)-(2), (c) (1), (2)(A) & (3)(A),
-

469(a), (b), (c)(1), (2), (4), (7)(A)-(C), (d)(1), (e)(1), (g)(1)(A) & (B), (h)(1)
—

(2), (i)(1)-3(3(A).

Regs §~ 1.165-1(a), (b), (d)(1), -9(a), (b) (1), & (2).

Text. pp. 449-5 8, 816-26(skim) & Clia 17(skim the textual material; read pp.526-39
more closely).

1. This year TP’s widget business results in a net loss of $25,000. May TP claim a deduction
for this amount?

a) What if the net loss is $350,000?

2. Last year TP bought 100 shares of IBM stock for $18,000 and this year TP sells them for
$5,000. What are the tax consequences?

3. TP, being rather naive, “bought” Mr. Syndicator’s right to a $20,000 tax deduction several
years ago for $5,000 in cash. This year, after protracted negotiations with the IRS, this
deduction was disallowed. TP’s attorney advised her that it would be futile to pursue
litigation and that TP should instead claim a loss deduction for the $5,000. (Mr.
Syndicator’s whereabouts are unknown). Is the attorney correct?

4. This year TP sold her residence for $200,000. What tax results if she bought it last year
for:

a) $80,000
b) $250,000

5. Would your answer in problem 4(b) change if, when TP bought her residence she did so
because she needed a place to live and because she expected to make a profit when she
ultimately sold it?

6. Would your answer to 4(b) change if 2 years ago, when her residence was worth $220,000,
TP rented it to a tenant who has resided there until the date of sale?

7. What if in problem 4(b), TP had put the house up for rent 2 months before she sold it?

8. TP’s personal automobile is totally wrecked in a crash. The car cost TP $25,000 and was
worth $15,000 immediately before the accident. TP’s adjusted gross income is $50,000. Is
TP entitled to any deduction, and if yes, how much?

9. Same as problem 8 except TP used the car solely in her business. In previous years she had
taken $10,000 depreciation deductions on the car.

10. Same as problem 8 except that TP was insured and filed a claim on December 30 of this
year for the full $20,000 face amount of his policy.

a) What if next year TP only recovers $12,000 from her insurance company?

11. .Five years ago someone broke into TP’s safe and stole $10,000 of negotiable securities.
TP didn’t learn of the theft until this year. May TP claim a casualty loss deduction this
year?

12. TP just had her third auto accident this year. While doing 80 m.p.h. on a rainy night, she
encountered a tree smack in the middle of a sidewalk. Her $100,000 car was completely
totaled. Fearful that her insurance would be cancelled, TP did not file a claim with her
insurance company despite the fact that she was fully insured. Is TP entitled to a casualty
loss deduction?

13. TP and spouse had $50,000 of adjusted gross income this year without regard to the
following. While TP and spouse were out partying one Saturday night, thieves broke into
their home and stole the following. The amount of insurance recovered is also indicated.

Insurance
Item Cost FMV Recovery

Gold Watches $15,000 $20,000 None

Jewelry 20,000 25,000 $28,000

Furniture 5,000 5,000 None

What are the tax consequences to TP and spouse?

a) What if TP had also recovered $22,000 for the gold watches?

14. Do problems 1(a) (g) at pp. 53 9-40 of the text.


-

/FLS

You might also like