Joahn’s car, which he uses 100% for personal purposes, was completely destroyed

Question

Joahn’s car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2016. The car’s adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. John did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is John’s deductible loss?

a.

$0.

b.

$100.

c.

$500.

d.

$9,500.

e.

None of the above.

a.

$0.

b.

$100.

c.

$500.

d.

$9,500.

e.

None of the above.

Explanation / Answer

Answer is option c, i.e. $ 500.

John's adjusted gross income was $ 14,000

Fair Market Value of the car was $ 10,000

Deductible insurance policy was $2,000

Therefore John's deductible loss is $ 500.

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