Tim suffered greatly this year. In January a freak storm damaged his sailboat an

Question

Tim suffered greatly this year. In January a freak storm damaged his sailboat and in July Tim's motorcycle was stolen from his vacation home. Tim originally paid $27,250 for the boat, but he was able to repair the damage for $7,600. Tim paid $16,550 for the motorcycle, but it was worth $19,050 before it was stolen. Insurance reimbursed $1,920 for the boat repairs and the cycle was uninsured.

a. Calculate Tim's deductible casualty loss if his AGI is $44,000.

b. Calculate Tim's deductible casualty loss if his AGI is $143,000.

c.  How would you answer a. if Tim received an additional $62,050 in interest from municipal bonds this year?

Explanation / Answer

Answer a. Boat Motorcycle Decline in Value                  7,600              19,050 Adjusted Basis               27,250              16,550 Lesser of Basis or Value                  7,600              16,550 Less: Insurance Proceeds               (1,920)                        -   Uninsured Loss                  5,680              16,550 Pay casualty floor                   (100)                  (100) Casualty Loss                  5,580              16,450 Total Casualty Loss               22,030 Less: 10% of AGI ($44,000)               (4,400) Casualty Loss Deduction               17,630 Answer b. Total Casualty Loss               22,030 Less: 10% of AGI ($143,000)             (14,300) Casualty Loss Deduction                  7,730 Answer c. Interest on Municipal Bonds is exempt from tax. So, AGI will remain same. Total Casualty Loss               22,030 Less: 10% of AGI ($44,000)               (4,400) Casualty Loss Deduction               17,630

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