During 2010, Pam incurred the following casualty losses: Asset-FMV Before-FMV Af
ID: 2386076 • Letter: D
Question
During 2010, Pam incurred the following casualty losses:Asset-FMV Before-FMV After-Basis-Insurance
Business 1- $18,000- $ 0- $15,000- $ 4,000
Business 2- 25,000- 10,000- 8,000- 3,000
Business 3- 20,000- 0- 18,000- 19,000
Personal 1- 12,000- 0- 20,000- 2,000
Personal 2- 8,000- 5,000- 10,000- 0
Personal 3- 9,000- 0- 6,000- 8,000
All of the items were destroyed in the same casualty. Before considering the casualty
items, Pam reports business income of $80,000, qualified residential interest of $6,000
property taxes on her personal residence of $2,000, and charitable contributions of
$4,000. Compute Pam
Explanation / Answer
For business 1, the loss is the basis - insurance or 11,000. For business 2, the loss is the basis - insurance or 5,000. For business 3, the gain is the insurance - the basis or 1,000. Her total business casualty losses are a loss of 15,000 and would end up on line 14 of 1040. For personal property 1, the loss is the decrease in market value - insurance or 10,000. For personal property 2, the loss is the decrease in the market value - insurance or 3,000. For personal property 3, there is a gain of 2,000. You use the basis since that is lower than the decrease in the FMV and the insurance reimbursed you more than the cost. So, for the personal property there is a loss of 11,000. For 2010, you must deduct $100 per event. Since this was one event, the loss is reduced to 10,900. Then it is further reduced by 10% of AGI. In this case, AGI should be 80,000 minus the busines casualty loss of 15,000 for AGI of 65,000. So the personal casualty loss would be 10,900 - 6,500 = 4,400. Her taxable income would be 44950. This comes from 80,000 - 15,000 - 16400 (itemized deductions of 6000, 2000, 4000, 4400) - 3650 (personal exemption) = 44950.
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