Question

1)During 2018, Leisel, a single taxpayer, operates a sole proprietorship in which she materially participates. Her proprietorship generates gross income of $142,000 and deductions of $420,000, resulting is a loss of $278,000. The large deductions are due to the acquisition of equipment and the use of immediate expense and additional first-year depreciation to deduct all of the acquisitions. Can Leisel use all of this loss to offset other income she has? Explain.

2)Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2018, a fire caused major damage to the building and its contents. Heather purchased the building for $800,000 and has taken depreciation of $100,000 on the business portion. At the time of the fire, the building had a fair market value of $900,000. Immediately after the fire, the fair market value was $200,000. The insurance recovery on the building was $600,000. The contents of the building were insured for any loss at fair market value. The business assets had an adjusted basis of $220,000 and a fair market value of $175,000. These assets were totally destroyed. The personal use assets had an adjusted basis of $50,000 and a fair market value of $65,000. These assets were also totally destroyed. If Heather’s AGI is $100,000 before considering the effects of the fire, determine her itemized deduction as a result of the fire. Also determine Heather’s AGI.

Answer 1

Answer :

(1).

No, Leisel will not be able to use all this loss to offset other income that she has.

Of the total $278,000 she can use $250,000 to offset her non business income.

Excess amount business loss = 278,000 - 250,000 = $28,000

This excess business loss will treated as a part of her NOL carry forward.

Note : As per guideline i'm allowed to answer only one question. So please re-post remaining question separately.

If you are satisfied with this answer please Up - vote Thank You !!!