A hurricane destroys Kirk’s boat in 2017. The boat is worth $40,000, and Kirk paid $30,000...

A hurricane destroys Kirk’s boat in 2017. The boat is worth $40,000, and Kirk paid $30,000 for the boat two years ago. The boat is a personal use asset. Kirk’s AGI for 2020 is 40,000. Answer the following unrelated situations:

a. What is the casualty deduction that Kirk can take in 2017?

b. Assume that the boat was destroyed in 2020. What is the casualty deduction Kirk can take in 2020?

c. Assume that the insurance company pays Kirk $35,000 in 2017 to cover the loss of the boat. What is the casualty deduction Kirk can take in 2020?

Solutions

Expert Solution

Casulaty loss is a loss or damage of property resulting from unexpected or sudden event for example,storms , floods etc

the amount of loss would be calculated as lower of:-

1. adjusted basis in the property before casulaty

2. decrease in fmv of property from theft

KIRKS boat got damaged in 2017 because of hurriane , thus it will be classified as casualty and amount of loss would be less of

1.30000 2. 40000

so amount of loss is 30000

Amount of deduction allowed is

total loss less: $100 and any amount received as insurance claim and total reduced by 10% of AGI

a) $30000-$100=$29900 -10% OF AGI =$29900 since AGI in 2017 is not given so not deductong $4000 .

total deduction is $29900

b) casualty deduction will be allowed only if it is resulting from federally declared diaster. it will be claimed as itemized deuction and Kirks would not

be able to caim standard deduction.


Amount of deduction allowed is
total loss less: $100 and any amount received as insurance claim and also 10% of AGI
a) $30000-$100=$29900 -10% OF AGI 40000=$29900-4000=$25900
c) if insurance company pays $35000 in 2017. then deduction would be $30000 -$35000. thus no deduction would be allowed in 2017

ekkarill92 answered 1 year ago

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