Your client built a house in 2012 at a cost of $2 million. During Harvey storm,

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

Explanation / Answer

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

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