a strong hurricane hit the north eastern part of the united states in 2014 and b

Question

a strong hurricane hit the north eastern part of the united states in 2014 and bill smith's residence in upstate New York was severely damaged.In 2011,the residence cost $250,000 to build new.The fair market value before the hurricane was $400,000 and the fair market value after the hurricane was $100,000.The Smith's AGI for 2014 is $350,000.The Smith's insured the residence for $200,000 but have not yet received any reimbursement from the insurance company.Required.Compute the amount of Casualty loss if any for 2014.

Explanation / Answer

The deductibility of personal-use property loss is limited to the following amount for each loss event:

Deduction for Loss of Personal Property = Loss Amount – $100 – 10% × Adjusted Gross Income

Loss= Fair market value before disaster – Fair market value after disaster

    =   400000-100000

   = $ 300000

Deduct insurance compensation received or receivable = $ 300000 - $ 200000= 100000

Deductable casuality loss for the year 2014= Net loss – 100- 10% AGI

                                                                            = $100000-$100- 10%(350000)

                                                                          = $64900

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