Question

At a cost of $10,000, Sleepy purchased a car three years ago for personal use. In the current year, she dozed off one night while driving and the car attached itself to a tree. Before the accident, the car was worth $8,000 but, after the accident, only $1,000. At the time of the accident Sleepy was taking a vase, a decorative ornament in her home, to a dealer to have it appraised. It had been purchased two years earlier for $10,000, and it was totally destroyed in the accident. Sleep recovered $1,000 in insurance for the car and $20,000 for the vase. Disregarding the above transactions Sleepy has an adjusted gross income of $30,000.

What is the amount of Sleepy’s personal casualty loss on the car for the year?

What is the amount of Sleepy’s personal casualty gain on the vase for the year?

What is the character of those gains and losses?

Answer 1

(1) : Computation of Amount of Sleepy's personal casualty loss on the car for the year -

= Car worth - Insurance - Value after crash - 165(h) limitation of over 5$100

= $(8,000 - 1,000 -1,000- 100)

= $5,900 .

Therefore Sleepy’s personal casualty loss on the car for the year = $5,900 .

(2) : Computation of amount of Sleepy’s personal casualty gain on the vase for the year -

  Sleepy’s personal casualty gain on the vase for the year = $10,000 .

(3) : Given data - What is the character of those gains and losses?

As per Section 165(h)(2)(B) -

Regarded as capital Asset currently regardless of whether there was no Sale or Exchange b/c gains surpass losses.....Car held for a long time and vase for 2 yrs, in this way Loss is LTCL and gain is LTCG .