Question

Noelle's diamond ring was stolen in 2017. She originally paid $9,100 for the ring, but it was worth considerably more at the time of the theft. Noelle filed an insurance claim for the stolen ring, but the claim was denied. Because the insurance claim was denied, Noelle took a casualty loss for the stolen ring on her 2017 tax return. In 2017, Noelle had AGI of $45,500. In 2018, the insurance company had a "change of heart" and sent Noelle a check for $5,460 for the stolen ring. The per event floor is $100.

What is the proper tax treatment of the $5,460 Noelle received from the insurance company in 2018?
Noelle should ________ the amount of $_________ .

Answer 1

As per section 7-15B, theft loss should be recognized when the loss is discovered instead of when it actually happens. It is because, embezzlement may not be discovered for years but can still recognize the loss when we discover it.

Noelle filed her claim with insurance company and the claim is denied by the company. therefore, she has right to take casualty loss in year 2017.

Now in 2018, she received claim from insurance company and she has to include it as gross income the tax benefit she received. In order to calculate that we have to use the $100 and 10% of AGI floors.

$9,100 (loss on the ring) - $100 ( deduction floor ) - $4,550 (10% x 45,500 ) = $4,450

Noelle should include the amount of $4,450.