On the night of January 10, Year 1, a tornado caused serious damage to Jason’s o
ID: 2616949 • Letter: O
Question
On the night of January 10, Year 1, a tornado caused serious damage to Jason’s office building and its contents. Just prior to the tornado, the office building had a $250,000 adjusted basis and a fair market value of $300,000; the contents had an adjusted basis of $5,000 and a fair market value of $4,000. The building and the contents immediately after the tornado are appraised at $240,000 and $0, respectively. While the insurance company agreed to pay Jason $30,000 for the damage to the building, its contents were not covered. Jason estimates that is will cost his $10,000 to replace all the contents. Jason’s Year 1 AGI is $120,000. What amount of casualty loss deduction may Jason claim for Year 1 as a result of the tornado?
Explanation / Answer
Calculation of amount of casualty loss deduction may Jason claim for Year 1 as a result of the tornado:
Market Value of office building = $300,000
Appraised Value of building after tornado = $ 240,000
Gross loss on building = $60,000
Less: Insurance Cover = $ 30,000
Net Loss on Building (A) = $30,000
Replacement cost of office Contents = $10,000
Appraised Value of Contents after tornado = $ 0
Gross loss on Contents = $10,000
Less: Insurance Cover = $0
Net Loss on Contents (B) = $10,000
Total amount claimed as casual Loss (A+B) =$ 10,000+ 30,000
= $ 40,000
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