multiple-choice question and solution (9) below. Because Landon is a sole proprietor, all the information listed in this question would fall under Form 1040, Schedule D, and Schedule C. You should already be familiar with Schedule D from ACCT 3101. Required: 1. In Form 1040, which lines do these deductions appear on, and for what amount on each line. 1b. Also attach a partially completed Form 1040 with these two lines completed. 2. What is the total loss/deduction on Schedule D? 3. What is the total deduction on Schedule C? 4. On which Section of Schedule C does this deduction appear? Research this answer in the instructions to Schedule C. 4b Please attach a partially completed Schedule C with the losses that go on Schedule C in the appropriate section. 5. Comment on what you have learned so far and what you would like to learn. END. BELOW IS FOR INFORMATION ONLY. 9. Business bad debts are deductible even if they are only partially uncollectible (the uncollectible part is deductible), but personal bad debts are deductible only if they are completely uncollectible. There is also a $3,000 annual limit to uncollectible personal loans, assuming there were no capital gains. [9] Landon, a sole proprietor, made the following loans during the year. Two loans were closely related to his business operation, and the other two were personal Loan To Amount A $2,000 Nonbusiness B $1,000 Nonbusiness C $3.000 Business D $5,000 Business Unrecoverable Debt Write Off Landon's Books during the Year $1,000 $1,000 $1,000 $2.000 The unpaid balance of each loan that is not recoverable has been written off. What is the total maximum tax deduction Landon can take for business and nonbusiness worthless debt for the year? A. $2.000 B. $3.000 C. $4,000 D. $5.000 The correct answer is C 4b Please attach a partially completed Schedule C with the losses that go on Schedule C in the appropriate section. 5. Comment on what you have learned so far and what you would like to learn. END. BELOW IS FOR INFORMATION ONLY. 9. Business bad debts are deductible even if they are only partially uncollectible (the uncollectible part is deductible). personal bad debts are deductible only if they are completel uncollectible. There is also a $3,000 annual limit to uncollectible personal loans, assuming there were no capital gains. [9] Landon, a sole proprietor, made the following loans during the year. Two loans were related to his business operation, and the other two were personal. Loan To Amount A $2,000 Nonbusiness B $1,000 Nonbusiness C $3,000 Business D $5,000 Business Unrecoverable Debt Written Off Landon's Books during the Year $1,000 $1,000 $1,000 $2,000 The unpaid balance of each loan that is not recoverable has been written off. What is the maximum tax deduction Landon can take for business and nonbusiness worthless debt fo year? A. $2,000 B. $3,000 C. $4,000 D. $5,000 The correct answer is C. A. Wholly worthless nonbusiness debts and partially worthless business debts are deductible. Therefore, the losses from the loans to B and C are also deductible. B. Wholly worthless nonbusiness debts are deductible. Therefore, the loan to B is also deductible. C. A partially worthless nonbusiness debt is not deductible (Reg. 1.166-5), and a wholly worthless nonbusiness debt is treated as a loss from the sale or exchange of a capital asset held for 1 year or less, ie., a short-term capital loss (Sec. 166(d). Notice that the Sec. 1211 limit of $3,000 for a capital loss deduction is not reached in this problem since only the loan to B creates a capital loss. Partially worthless business debts may be deducted under Sec. 166(a) to the extent they are specifically written off. Landon's bad debt deduction is Deduction $ 0 1,000 1,000 2,000 $4,000 Of the loss $1,000 is a short-term capital loss and $3,000 is a business bad debt deduction that reduces ordinary income. D. Partially worthless nonbusiness debt (the loan to A) is not deductible