Question

Dave uses the second floor of a building for his residence and the first floor for his business. The uninsured building is destroyed by fire. Are the tax consequences the same for each part of the building? Explain. (Chapter 6)

Ron, a cash basis taxpayer, sells his business accounts receivable of $100,000 to Felicia for $70,000 (70% of the actual accounts receivable). Discuss the amount and classification of Ron's bad debt deduction.  

In 2018, Kelsey sustained a loss on the theft of a painting. She had paid $20,000 for the painting, but it was worth $40,000 at the time of the theft. Evaluate the tax consequences of treating the painting as investment property or as personal use property. In other words, what would be the tax consequences if the painting was treated as investment property?   What would be the tax consequences if the painting was personal use property?

Answer 1

a. As per Capital Gains, Building is considered as a capital asset, hence the tax consequences are same for all parts of building whether it is used for residential purpose or business purpose. It will be treated as capital loss i.e. dead loss.

b. 30000 will be the amount of bad debts & will be debited to Profit & Loss A/c as expense.

c. As per capital gains, painting is treated as capital asset. Hence, theft of painting is a dead loss means no tax treatment.