Derrick owns a farm in eastern North Carolina. A hurricane hit the area and dest

Question

Derrick owns a farm in eastern North Carolina. A hurricane hit the area and destroyed a farm building and some farm equipment and damaged a barn.

Due to the extensive damage throughout the area, the President of the United States declared all areas affected by the hurricane as a disaster area. Derrick, who files a joint return with his wife, had $65,100 of taxable income last year. Their taxable income for the current year is $210,300, excluding the loss from the hurricane.

a-1. Calculate the amount of the loss deductible by Derrick and his wife?

a-2. What amount of loss should be adjusted against current and last year?      

tem Adjusted Basis FMV before Damage FMV after Damage Insurance Proceeds   Building $ 105,200 $ 142,000         $ 0          $ 68,400            Equipment 83,800   64,000         0          15,400            Barn 128,800 204,100         128,800      54,400         

Explanation / Answer

a-1. the amount of the loss deductible by Derrick and his wife Proceeds Basis/Decrease in FMV Gain/Loss Building 68400 105200 -36800 Equipment 15400 83800 -68400 Barn 54400 75300 -20900 (204100-128800) Loss -126100 a-2 In last year the taxable income was $65100 so out of $126100 loss $65100 will be adjusted. The remaining $61000 (126100-65100) will be adjusted against current year. Last Year loss adujusted $65,100 Current Year $61,000

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