Bad debts: Bankruptcy and loans
Not what you're looking for?
In 2010, Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. This past year, the stock market plunged, and Paula incurred large losses. In 2012, Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is:
A. Grace deducts a business bad debt of $12,000 in 2012.
B. Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2012.
C. Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2012 and carries $9,000 over to subsequent years.
D. Grace deducts a business bad debt of $3,000 in 2012 and carries $9,000 over to subsequent years.
Purchase this Solution
Solution Summary
This solution provides the correct answer with explanation to the bankruptcy and loans tax question presented. The applicable tax law is cited, and the proper deduction amount that Grace can take is thoroughly explained.
Solution Preview
C. Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2012 and carries $9,000 over to subsequent years.
The concept is correct, but we don't have any indication in this scenario that this was a business agreement. Grace ...
Purchase this Solution
Free BrainMass Quizzes
Lean your Process
This quiz will help you understand the basic concepts of Lean.
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Basics of corporate finance
These questions will test you on your knowledge of finance.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.