Chapter 7 Notes: Deductions and Losses

These flashcards cover key terms and concepts related to business deductions, bad debts, and losses as outlined in Chapter 7.

Bad Debt

An accounts receivable that is considered worthless and is deductible for tax purposes if previously included in income.

Specific Charge-Off Method

The required method for tax reporting of bad debts, whereby a deduction is claimed in the year a specific business debt becomes worthless.

Business Bad Debt

Debt incurred in a trade or business treated as an ordinary deduction in the year it is incurred.

Non-business Bad Debt

Debt unrelated to the taxpayer’s trade or business, treated as a short-term capital loss.

Short-term Capital Loss

A loss incurred on the sale of an asset held for one year or less, which may offset capital gains.

Worthless Securities

Securities that have become completely worthless, allowing taxpayers to deduct losses as capital losses.

Small Business Stock (§ 1244)

Losses on the sale or worthlessness of certain small business stock treated as ordinary losses rather than capital losses.

Casualty Loss

Losses or damages to property arising from sudden events like fire or theft, deductible under specific conditions.

Personal Casualty Gains

Gains resulting from the sale of a capital asset that can be offset by personal casualty losses.

Net Operating Loss (NOL)

Losses from the operation of a trade or business that can offset taxable income in other years, subject to specific limitations.