Your portable sawmill was completely destroyed by a fire and you carried no insu

Question

Your portable sawmill was completely destroyed by a fire and you carried no insurance on the property. The adjusted basis for depreciation of the sawmill building and equipment at the time of the fire was $6,500, and its fair market value was $5,000. The value of the equipment after the fire was only scrap value, amounting to $300.

A. What is your deductible casualty loss?
B. Assume that the sawmill was damaged by the fire but not completely destroyed. Just before the fire, the sawmill had a fair market value of $5,000 and immediately after the fire its fair market value was $3,500.
Under these facts, what is your deductible casualty loss?

Explanation / Answer

ans a Deductible casulty loss Adjusted Basis 6500 Less: salavge value 300 Deductible casulty loss 6200 ans b Casulty Loss is $1500 (5000-3500) Loss is limited to decrease in fair market value as this amt is less than the adjusted basis of $6500

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