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On the night of January 10, Year 1, a tornado caused serious damage to Jason’s office...

On the night of January 10, Year 1, a tornado caused serious damage to Jason’s office building and its contents. Just prior to the tornado, the office building had a $250,000 adjusted basis and a fair market value of $300,000; the contents had an adjusted basis of $5,000 and a fair market value of $4,000. The building and the contents immediately after the tornado are appraised at $240,000 and $0, respectively. While the insurance company agreed to pay Jason $30,000 for the damage to the building, its contents were not covered. Jason estimates that is will cost his $10,000 to replace all the contents. Jason’s Year 1 AGI is $120,000. What amount of casualty loss deduction may Jason claim for Year 1 as a result of the tornado?

Solutions

Expert Solution

Calculation of amount of casualty loss deduction may Jason claim for Year 1 as a result of the tornado:

Market Value of office building                          = $300,000

Appraised Value of building after tornado          = $ 240,000

Gross loss on building                                      = $60,000

Less: Insurance Cover                                       = $ 30,000

Net Loss on Building (A) = $30,000

Replacement cost of office Contents                 = $10,000

Appraised Value of Contents after tornado         = $ 0

Gross loss on Contents                                     = $10,000

Less: Insurance Cover                                       = $0

Net Loss on Contents (B)                                   = $10,000

Total amount claimed as casual Loss (A+B)        =$ 10,000+ 30,000

                                                   = $ 40,000

jeff jeffy answered 2 years ago
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