Question

BeBe had a tough year! She had two different unfortunate casualties during the year.   First, her car was in an accident. Her car had a value of $20,000. Her basis (her cost) had been $30,000. After the accident, the value was reduced to only $10,000. Her insurance company reimbursed her for $3,000 only. Second, she had a separate free-standing storage she on her property, which burned down.   The shed had a fair market value of $4,000, and a cost adjusted basis to BeBe of $3,500. Her insurance company reimbursed her $3,000 for her loss.   If BeBe's adjusted gross income is $60,000, what is her deductible casualty loss, if any?

Show even very simple and obvious calculations.

Answer 1

Steps for calculating deductible casualty loss:

1. Compute adjusted basis in the property before casualty/ theft/ fire

2. Compute decrease in the Fair Market value of the property due to casualty/ theft/ fire

3. Compute lower of the amounts in step 1 and step 2

4. Subtract insurance compensation received/ to be received from amount calculated in step 3

Casualty loss due to car accident:

1. Adjusted basis = 20000

2. Decrease in FMV due to accident = 10000

3. Lower of step 1 and step 2: 10000

4. Step 3 - Insurance compensation received = 10000 - 3000 = 7000.

Casualty loss due to fire:

1. Adjusted basis = 3500

2. Decrease in FMV due to loss = 4000

3. Lower of step 1 and step 2 = 3500

4. Step 3 - Insurance compensation received = 3500-3000 = 500.

Each casualty loss shall be reduced by:

$100 for each casualty event and

10% of adjusted gross income.

Thus the calculatios further would be made as follows:

1. Loss due to accident = 7000-100 = 6900

2. Loss due to fire = 500-100 = 400

3. Total loss = 6900+400 = 7300

4. Reduce step 3 loss by 10% of adjusted gross income: 7300 - (10%*60000)

7300-6000

5. Deductible casualty loss: $1300.