Casualty Losses. During 2010, Pam incurred the following casualty losses: ASSETS
ID: 2354405 • Letter: C
Question
Casualty Losses.
During 2010, Pam incurred the following casualty losses:
ASSETS FMV Before FMV After Basis Insurance
Business 1 $18,000 $ 0 $15,000 $ 4,000
Business 2 25,000 10,000 8,000 3,000
Business 3 20,000 0 18,000 19,000
Personal 1 12,000 0 20,000 2,000
Personal 2 8,000 5,000 10,000 0
Personal 3 9,000 0 6,000 8,000
All of the items were destroyed in the same casualty. Before considering the casualty
items, Pam reports business income of $80,000, qualified residential interest of $6,000
property taxes on her personal residence of $2,000, and charitable contributions of
$4,000. Compute Pam’s taxable income for 2010. Pam is single.
Explanation / Answer
Business Losses: Loss on Business asset number 1 is 15,000 – 4,000 = 11,000 Loss on Business asset number 2 is 8,000 – 3,000 = 5,000 Gain on Business asset number 3 is 1,000 For a total business asset loss of 15,000 Personal losses: Loss on Personal Assset Number 1 is 12,000 – 2,000 = 10,000 (decrease in FMV is less than basis) Loss on Personal Asset number 2 is 3,000 (decrease in FMV is less than basis) Gain on Personal Asset number 3 is 2,000 For a total loss on personal assets of 11,000 80,000 Schedule C (1040 line 12) Less 5652 SE Tax deduction (80,000*.9235*.153*.5 - 1040 line 27 See Schedule SE) Equals 74348 AGI (1040 line 37) Schedule A: 6,000 (residential interest) 2,000 (property tax) 4,000 (charitable contributions) 15,000 (business loss) 3465 (11,000 – 100 – 7435 (10% AGI)) = 30465 Total Schedule A itemized 74348 AGI Less 3650 exemption Less 30465 itemized deductions Equals 40233 (taxable income)
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