During the past tax year, Jane
During the past tax year, Jane identified $50,000 as anonbusiness bad debt. In that tax year, Jane had $100,000 oftaxable income, of which $5,000 consisted of short-term capitalgains. During the current tax year, Jane collected $10,000 of theamount she had previously identified as a bad debt.
Jane treats the $50,000 nonbusiness bad debt as ______ of which$_____ is carried over to the current year. Jane would have toinclude $______ of the collection in gross income in the currentyear, resulting in a remaining carryover of $______.
Answer:
You can take the deduction only in the year in which the debtbecomes totally worthless.Unlike business bad debts, nonbusiness bad debts are classified asshort-term capital losses for tax purposes.As such, they are subject to the limitations on taking short-termcapital losses.You can deduct such a loss against any short or long-term capitalgains you have for the year from the sale of capital assets (suchas real estate and stocks).Any remaining amount of your loss is deductible only up to $3,000per year against your other ordinary income.Nondeductible losses may be carried over to be deducted in futureyears.
So, Here if the $50,000 needs to be treated as short termcapital loss of which $5,000 can be set off against the short termcapita gains earned in last tax year.of remaining $45,000 Short term capital loss only $3,000 isallowable and balance is non deductible which may be carried overto be deducted in future years that is $42,000.
If an account receivable is written off and is recovered insubsequent tax years, income is created subject to tax benefitrule.
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