Question

Your client built a house in 2012 at a cost of $2 million. During Harvey storm, the house got flooded and there was a 2 ft. water in the house. He finished remodeling the house in 2018 at a cost $150,000. The approximate square feet of the house is 10,000. The fair market of the house before the flood damage was 2,125,000 and the fair market value after the flood damage was $1,500,000. There was a considerable damage to the furniture, fixtures and other contents of the house. Calculate Casualty loss from the house assuming his AGI for 2017 is $350,000. File IRS-form 4684

Answer 1

	Calculation of casualty loss
	Adjusted basis of house before storm	$2,000,000
	Decrease in fair value of house after storm	625,000
	Casualty loss	625,000
	Casualty loss is lower of adjusted basis before storm or decrease in fair value after storm
	Form 4684
	Section A- Personal use Property
1	Description of Property	House
2	Cost or basis of property	$2,000,000
3	Insurance or other reimbursement	$0
4	Gain from casualty or theft	0
5	Fair market value before casualty or theft	$2,125,000
6	Fair market value after casualty or theft	$1,500,000
7	Subtract line 6 from line 5	$625,000
8	Enter the smaller line 2 or line 7	$625,000
9	Subtract line 3 from line 8	$625,000
10	Casualty or theft loss	$625,000
11	Enter $100	$100
12	Subtract line 11 from line 10	$624,900
13	Add the amount on line 12 on all forms 4684	$624,900
14	Add the amount on line 4 on all forms 4684	0
15	If line 14 is less than line 13, enter 0 and go to line 16	0
16	Add line 14 and 15. Subtract from line 13	$624,900
17	Enter 10% of adjusted gross income	$35,000
18	Subtract line 17 from line 16	$589,900