Jaime’s home was completely destroyed by flooding in 2016. He purchased the home
ID: 2391100 • Letter: J
Question
Jaime’s home was completely destroyed by flooding in 2016. He purchased the home in 2010 for $175,000 including $50,000 allocated for the land. a. What is Jaime’s loss (assuming he had no insurance)? b. If Jaime’s adjusted gross income is $80,000, what is his deductible loss? c. Assume Jaime had insurance and received $160,000 in insurance proceeds to rebuild his home. What is his realized gain or loss? d. What is the recognized gain or loss if he elects to build a smaller home and only uses $120,000 of the insurance proceeds to build the replacement home?
Would C. and D. be a gain or loss?
Explanation / Answer
part a:
Particulars
Amount ($)
Amount ($)
Price paid to purchase the home
175,000.00
Less: Amount allocated for the land
50,000.00
Loss to Jaime
125,000.00
Part b:
In case Jaime’s adjusted gross income is $80,000 then the deductible loss would be lower of the actual loss and the adjusted gross income. Since the gross adjusted income is $80,000 lower than the loss from flood hence, the amount of deductible loss is $80,000, i.e. the gross adjusted income.
Part c:
Particulars
Amount ($)
Amount ($)
Particulars
Amount ($)
Amount ($)
Amount received from insurance
160,000.00
Add: Amount allocated for land
50,000.00
210,000.00
Less; Home purchased for
175,000.00
Gain (210000 - 175000)
35,000.00
Part d:
Particulars
Amount ($)
Amount ($)
Amount received from insurance
160,000.00
Add: Amount allocated for land
50,000.00
210,000.00
Less: Cost of rebuilding small home
120,000.00
Gain (210000 - 120000)
90,000.00
Note:
In all cases it has been assumed that the allocation for Land of $50,000 is compulsory.
part a:
Particulars
Amount ($)
Amount ($)
Price paid to purchase the home
175,000.00
Less: Amount allocated for the land
50,000.00
Loss to Jaime
125,000.00
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