Jack purchased a personal residence for $180,000, and insured it for the full re

Question

Jack purchased a personal residence for $180,000, and insured it for the full replacement value. It had a fair market value of $195,000 when it was damaged by a fire. The fair market value after the fire was $155,000, and Jack received insurance proceeds of $15,000. What is the net amount of casualty loss that Jack can deduct if his adjusted gross income is $80,000?

Last year, Jacques paid the following interest:

Interest on home mortgage $7,300

Interest on loan to purchase furniture for personal residence $1,000

Interest on a loan used to purchase State of Louisiana general purpose bonds $1,800

If Jacques itemizes his deductions for last year, what is the amount of deductible interest expense?

Explanation / Answer

1. Calulation of Net amount of casualty loss that jack can deduct

Step 1 Calculation of Decline value in FMV

FMV Before Fire $ 195000

FMV after Fire $ 155000

Decline value in fair market value $ 40000

Step 2: Due to Reduction FMV less than Basis so step amount must be reduce by proceed from insurance, $ 100 , 10% of Adjusted Gross income

Step 1 Value $ 40000

Less Insurance proceed $ 15000

fixed reduction $ 100

10 % of Adjusted Gross income $ 8000

( 80000*10%)

Casualty loss deduction $ 16900 option 2

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