Personal Casualty and Theft Losses (LO. 12) Jorge and his wife own a beachfront

Question

Personal Casualty and Theft Losses (LO. 12)

Jorge and his wife own a beachfront vacation home in Savannah, Georgia. During the year, high winds from a tropical storm shatter a sliding glass door and rain from the storm causes extensive water damage to the kitchen. Fortunately, during a calm in the storm, Jorge is able to board up the door, which limits the water damage to the kitchen. The items damaged in the storm are:

In addition, Jorge pays $640 to replace the sliding glass door. The insurance company will not reimburse him for the cost of the new door because the old sliding glass door did not meet the company's standards for a hurricane area.

The amount of Jorge's casualty loss before considering any annual limitations that may apply is $________

Cost Value
Before Value
After Insurance
Proceeds Kitchen furniture $2,110 $1,455 $435 $640 TV 280 225 0 150 Refrigerator 1,030 975 105 825 Linoleum flooring 1,700 885 0 485

Explanation / Answer

The measure of a personal casualty loss is the lesser of the decline in marketvalue or the property's basis.In the case of a theft, the decline in market value isthe market value of the property prior to the theft.The measured loss must bereduced by any insurance reimbursements and the $100 statutory floor. Jorge'scasualty loss is $1,400 before considering the annual personal casualty losslimitation (i.e., 10% of adjusted gross income):

Kitchen furniture (decline in value) $ 1,020

Television (decline in value) 225

Refrigerator (decline in value) 870

Linoleum Flooring (decline in value) 885

Window damage (cost to repair) 640

Total loss before insurance reimbursement $ 3,640

Less:Insurance reimbursement

($640 + $150 + $825 + $485) (2,100)

Loss net of insurance $ 1,540

Less: statutory floor (100)

Net casualty loss before annual limitation 1440

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