Chapter 8: Losses and Bad Debts
True or False

1 .       A taxpayer may take a deduction for securities that become completely worthless during the taxable year. [Hint]


2 .       Section 1244 of the code provides for the deduction of losses associated with Sec. 1244 stock [Hint]


3 .       In general, losses from passive activities may offset portfolio income. [Hint]


4 .       Passive activity losses that are disallowed as deductions for the year in which they are incurred are carried over indefinitely and treated as losses allocable to that activity in the following tax years. [Hint]


5 .       Material participation depends solely on the amount of time one devotes to an activity for purposes of the passive activity rules. [Hint]


6 .       Active participation, as opposed to material participation, cannot be achieved by the taxpayer without regular, continuous, and material involvement in the activity. [Hint]


7 .       The amount of loss sustained in a casualty is the amount by which the property's FMV is reduced as a result of the casualty. This is measured by comparing the property's FMV immediately before and immediately after the casualty. [Hint]


8 .       The amount of loss sustained in a casualty is the amount by which the property's FMV is the taxpayer's adjusted basis in the property, even if it is greater than the property's FMV. [Hint]


9 .       If more than one property is destroyed in the same casualty, the loss on each property must be calculated separately. [Hint]


10 .       Casualty gains and losses incurred on personal-use assets are combined with casualty gains and losses on business and investment property. [Hint]


11 .       If casualty losses on personal-use property exceed casualty gains for the year, the net loss is further reduced by the 10% of the AGI floor. [Hint]


12 .       If subsequent recovery is received for a loss that was previously deducted, the reimbursement is included in income in the year of recovery. [Hint]


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