CHAPTER 7 Deductions and Losses: Certain Business Expenses and Losses Critical Thinking

5.Many years ago, Jack purchased 400 shares of Canary stock. During the current year, the stock became worthless. It was determined that the company went under because several corporate officers embezzled a large amount of company funds. Identify the relevant tax issues for Jack.

6. LO.2 Sean is in the business of buying and selling stocks and bonds. He has a bond of Green Corporation for which he paid $200,000. The bond is currently worth only $50,000. Discuss whether Sean can take a $150,000 loss for a business bad debt or for a worthless security.

7. LO.2 Discuss the tax treatment of the sale of 1244 stock at a gain.

8. LO.3, 4 Jim discovers that his residence has extensive termite damage. Discuss whether he may take a deduction for the damage to his residence.

9. LO.3, 4 The value of Terrahs personal residence has declined significantly because of a recent forest fire in the area where she lives. The fire was a Federally declared disaster. Terrahs house suffered no actual damage during the fire, but because much of the surrounding area was destroyed, the value of all of the homes in the area declined substantially. Discuss whether Terrah can take a casualty loss for the decline in value of her residence caused by the fire.

10. LO.4 Discuss at what point in time a theft loss generally is recognized