BeBe had a tough year! She had two different unfortunate casualties during the y

Question

BeBe had a tough year! She had two different unfortunate casualties during the year. First, her car was in an accident. Her car had a value of $20,000. Her basis (her cost) had been $30,000. After the accident, the value was reduced to only $10,000. Her insurance company reimbursed her for $3,000 only. Second, she had a separate free-standing storage she on her property, which burned down. The shed had a fair market value of $4,000, and a cost adjusted basis to BeBe of $3,500. Her insurance company reimbursed her $3,000 for her loss. If BeBe's adjusted gross income is $60,000, what is her deductible casualty loss, if any?

Explanation / Answer

Casualty losses are limited

The amount of your casualty loss is the lesser of:

from this we need to subtract any reimbursement from the insurance firm

The calulcation in this case would be:

Event 1: Car Accident

casualty loss = $10,000 - $3,000 - $100 = $6,900

Event 2: fire in shed we would use cst adjusted basis as it is lower than fair market value

casualty loss = $ 3,500 - $3,000 - $100 = $400

Total loss = $$6,900 + $400 = $7,300

10% of AGI = $6,000

Deductible casualty loss= $7,300 - $6,000 = $1,300

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