Discuss the impact of an NOL on the DPAD.

27. LO.7 Discuss whether deductions for AGI can be treated as nonbusiness deductions in computing an individual’s NOL.

28. LO.1 Several years ago, John Johnson, who is in the lending business, loaned Sara $30,000 to purchase an automobile to be used for personal purposes. In August of the current year, Sara filed for bankruptcy, and John was notified that he could not expect to receive more than $4,000. As of the end of the current year, John has received $1,000. John has contacted you about the possibility of taking a bad debt deduction for the current year.
Write a letter to John that contains your advice as to whether he can claim a bad debt deduction for the current year. Also prepare a memo for the tax files. John’s address is
 
100 Tyler Lane, Erie, PA 16563.

29. LO.1 Monty loaned his friend Ned $20,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $11,000, Ned

filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $11,000 as a nonbusiness bad debt. Last year, Monty had capital gains of $4,000 and taxable income of $20,000. During the current year, Ned paid Monty $10,000 in satisfaction of the debt. Determine Monty’s tax treatment for the $10,000 received in the current year.

30. LO.1 Sally is in the business of purchasing accounts receivable. Last year, Sally purchased an account receivable with a face value of $80,000 for $60,000. During the current year, Sally settled the account, receiving $65,000. Determine the maximum amount of the bad debt deduction for Sally for the current year.

31. LO.1, 2 Mable and Jack file a joint return. For the current year, they had the following items:
Salaries $120,000
Loss on sale of § 1244 stock acquired two years ago 105,000
Gain on sale of § 1244 stock acquired six months ago 20,000
Nonbusiness bad debt 19,000
Determine their AGI for the current year.