During the current year, Adam\'s residence had an adjusted basis of $150,000 and

Question

During the current year, Adam's residence had an adjusted basis of $150,000 and it was destroyed by a tornado. An appraiser valued the decline in market value at $175,000. Late in the current year, Adam received $130,000 from his insurance company for the property loss and did not elect to deduct the casualty loss in an earlier year. Adam's current year adjusted gross income was $60,000 and he did not have any casualty gains. What total amount can Adam deduct as a current year itemized deduction for casualty loss, after the application of the threshold limitations?

Explanation / Answer

If property is personal-use property, the amount of casualty loss is the lesser of:
    The adjusted basis of your property,(i.e. $150,000) or
    The decrease in fair market value of your property(i.e. $175000)

so in the given case,casualty Loss will be $150,000.

Calculation of Allowable Casualty /Claim of Loss:

      Casualty Loss             - $150,000
Less: $100 for each Casualty    -      $100
         Balance                - $149,900
Less: Insurance Claim Received - $130,000
         Balance                -   $19,900
Less: 10% of AGI(10% 0f $60,000)-   $ 6,000
       Allowable Casualty       -   $13,900

So in the given case, Adam can deduct $13,900 as a current year itemized deduction for the casualty loss.

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