Question

Reynaldo and Sonya, a married couple, had flood damage in their home due to a dam break near their home in 2019, which was declared a Federally Designated Disaster Area. The flood damage ruined the furniture that was stored in their garage. The following items were completely destroyed and not salvageable:

Damaged Items	FMV Just Prior to Damage					Original Item Cost (Basis)
Antique poster bed		$	9,800				$	6,900
Pool table			9,375					16,225
Flat-screen TV			1,650					5,825

Required:

Their homeowner's insurance policy had a $12,565 deductible for the personal property, which was deducted from their insurance reimbursement of $17,925, resulting in a net payment of $5,360. Their AGI for 2019 was $38,000. What is the amount of casualty loss that Reynaldo and Sonya can claim on their joint return for 2019?

Answer 1

SOLUTION

CASUALITY LOSS- It is a loss or damage of the personal property of a person, may arise due to unpredictable and uncertain events.The amount of casualty  loss is deductible from the Adjusted Gross Income .

The following points can apply for the$500 limitation per event on damaged personal assets and 10%AGI

A. Fair Market Value prior to the event = $20825

B. Fair Market Value after the event     =0

c. Adjusted basic cost = $28950e

D. Decrease in Fair Market Value($20,825-0) =20,825

E.Loss(small amount of point C or point A) =20,825

F. Deduct Net insurance amount =$5,360

G. Loss after reimbursement =$15465

H. Casualty loss After $500 rule =$14965

I..Deduct 10%of AGI ($38,000 x 10%) =$3,800

J. Casualty loss deduction = $11,165.

Note:- * Here the damages caused by the faulty water heater aretreated as a casualty.

*This is considered as one event, so $500 is deducted for calculating loss.