2. In 2015t Morley) a single taxpayer, had an AGI of $30,000 before considering
ID: 2449427 • Letter: 2
Question
2. In 2015t Morley) a single taxpayer, had an AGI of $30,000 before considering the following items: Loss from damage to rental property Loss from theft of bonds Personal casualty gain Personal casualty loss (after $100 floor) Determine the amount of Morley's itemized deduction from the losses. ($6,000) (3,000) 4,000 (9,000) a. $O b. $2,900 c. $5,120 d. $5,600 e. None of the above ANSWER RATIONALE: $30,000 (6,000) AGI before casualties Rental property loss Personal casualty gain $4,000 4.000) Personal casualty loss Adjusted gross income . Itemized deductions $2,600 Casualty loss [($9,000-$4,000)-(1 0% x $24,000) Miscellaneous itemized deductions Total itemized deductions S 5,600 The bonds are property held for the production of income, but not attributable to rents or royalties. Therefore, the loss is a miscellaneous itemized deduction not subject to the 2%-of- AGI floor.Explanation / Answer
In cases where a taxpayer has both, a personal casualty gain and a personal casualty loss, the gain and loss are netted out. If the personal casualty gain is in excess of the personal casualty loss, it is added to the AGI before casualities, whereas if the personal casualty loss is in excess of personal casualty gain, it is treated as itemized deduction after reducing it by the $100 floor and 10% of AGI.
In the given case, personal casualty gain is $4,000 and personal casualty loss is $9,000. Out of the $9,000 personal casualty loss, $4,000 has been taken out first to net the personal casualty gain. The remaiing $5,000 ($9,000 - $4,000) personal casuality loss has been then reduced by 10% of the AGI to be treated as itemized deduction.
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