Question

The Tavels left for vacation on December 18, 2015. When they returned home on January 4, 2016, they found their home had been burglarized. Taken from their home were a high definition Tv worth $4,000 and artwork worth $22,500. The Tavels had purchased the Tv a few months ago for $5,600. They had purchased the artwork for $ 8,400 in 2006. Unfortunatly, the Tavels allowed their homeowner's insurance to lapse last year. The Tavels' AGI in 2015 and 2016 is $83,00 and $92,000 , respectely.

a.) In which year can the Tavels claim a casualty and theft loss deduction?

b.) Compute the Tavels' casualty and theft loss deduction?

c.) How would your answer to part b. change if the Tavels had insured the artwork and received $7,500 from the insurance company for their loss?

Answer 1

Solution a:

Theft losses are deductible in the year in which it was discovered that property was stolen. In the given case loss was discovered in 2016, therefore deduction of casualty and theft loss will be available in 2016.

Solution b:

Computaton of casualty loss
Particulars	TV	Artwork
Decline in value	4000	22500
Adjusted Basis	5600	8400
Lesser of basis or decline in value	4000	8400
Less: Insurance proceed	0	0
Uninsured loss	4000	8400
Per casualty floor	100	100
Casualty loss	3900	8300

Aggregate casualty loss = $3,900 + $8,300 = $12,200

10% of AGI of Tavels in 2016 = $92,000*10% = $9,200

Allowable deduction for casualty loss in 2016 = $12,200 - $9,200 = $3,000

Solution c:

Computaton of casualty loss
Particulars	TV	Artwork
Decline in value	4000	22500
Adjusted Basis	5600	8400
Lesser of basis or decline in value	4000	8400
Less: Insurance proceed	0	7500
Uninsured loss	4000	900
Per casualty floor	100	100
Casualty loss	3900	800

Aggregate casualty loss = $3,900 + $800 = $4,700

10% of AGI of Tavels in 2016 = $92,000*10% = $9,200

As casualty loss is lesser than 10% of AGI, therefore casualty and theft loss deduction will not be available.