Question

Explain why the loss resulting from the sale of a computer in the following three situations is treated differently for income tax purposes:

a. Monica sells her personal computer at a loss of $1,300. None of the loss is deductible.

b. Omar sells a computer used in his carpeting business at a loss of $4,300. The loss is fully deductible.

c. Jerry sells his computer at a loss of $3,800. Jerry used the computer to keep track of his investment portfolio. Only $3,000 of the loss is deductible.

Answer 1

Answer:

Deductions:

The income tax is evaluated on the income of the citizen net of expenses for creating that income.These expenses of delivering the income are given as deductions /misfortunes by the  income tax laws.However ,just qualified deductions are permitted to be deducted from the taxable income.

Legislative Grace Concept :

This idea forms the basis for exclusions.Precise demonstration of congress permits the citizen to get help or relief from taxes through exclusions .An income can be barred for all time or conceded for future period tax collection.

Both the income exclusion and allowance derivation are alluded as assessment relief,this is a result of training of Legislative Grace Concept .

Application of the concept contrasts for the income and deductions things as a result of the investigating approach .All - inclusive concept income depicts that all income got is taxable except if an arrangement rejects a thing from taxable income .Hence , the way to deal with income must be made with a assumption that all pay or income is taxable and to look for an arrangement ,which prohibit a income from tax.

Business purpose idea express that a deduction is permitted just when a expenditure is made for business or financial purpose that surpasses any tax shirking rationale .Hence ,the way to deal with deductions must be made with a assumption that all things are not deductible from tax and to look for an precise provision ,which permit the deduction.

a)

Generally ,the PC is a asset and it is utilized for individual purposes .Hence, the individual misfortune or personal loss are not deductible

b)

Here ,Omar utilizes the PC for business purposes .Hence ,the misfortune or loss happened in business are deductible.

c)

Right now utilization of PC is for investment reason . The loss of $ 3,800 is a capital loss.The capital misfortune deduction is constrained to $ 3,000 on the off chance that he doesn't have any capital gains for the year.Hence,the balance amount of $ 800 just deductible in the next year.