Exercise 7-26 (Algorithmic) (LO. 4) Belinda was involved in a boating accident i

Question

Exercise 7-26 (Algorithmic) (LO. 4) Belinda was involved in a boating accident in 2018. Her speedboat, which was used only for personal use and had a fair market value of $31,200 and an adjusted basis of $15,600, was completely destroyed. She received $10,920 from her insurance company. Her AGI for 2018 is $39,000. Belinda's tentative casualty loss before any limitations is $. Is her loss currently deductible?

My book is: South-Western Federal Taxation ISBN-13: 978-1337-70256-0 ISBN-10: 1-337-70256-0 I have no way to find my book on the Chegg Texbook Solution, please help me. Thank you

Explanation / Answer

Part A)

Step 1: Determine the Amount of Loss

The amount of loss is lesser of the following amounts:

1) Adjusted basis of the property (which is $31,200 in this case)

and

2) Difference between the fair market value of the property before the event and fair market value after the event (which is $15,600 - 0 = $15,600 in this case)

Based on the above criteria, the amount of loss would be $15,600 (as 15,600<31,200)

_____

Step 2: Calculate Casualty Loss

The amount of loss of $15,600 will be reduced by the amount of insurance proceeds in order to determine the amount of casualty loss before any limitations. The value of casualty loss before any limitations is arrived as below:

Casualty Loss = Amount of Loss (from Step 1) - Insurance Proceeds = 15,600 - 10,920 = $4,680

______

Part B)

No, Belinda's loss is not currently deductible because from the year 2018 onwards, the personal casualty loss deduction will be available only if the loss occurred as a result of a federally declared disaster. in the given case, Belinda didn't suffer any loss as a result of a disaster which met the requirements of the applicable regulation. Therefore, she cannot claim any amount of casualty loss as an itemized deduction for the year 2018.

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