Question

A flood completely destroyed Mr. and Mrs. Washington’s home on November 30 of 2018. The home was located in a federally declared disaster area. They claimed the loss on their current-year tax return. Based on the following facts, what is the amount of loss Mr. and Mrs. Washington can deduct for 2018?

Basis (contents not considered for this purpose) $110,000

Fair market value before flood 150,000

Fair market value after flood 30,000

Insurance reimbursement received

February 15 of the following year 80,000

Replacement February 1 of the following

year (property provided under disaster

relief programs of government agencies) 8,000

Adjusted gross income for the current year 40,000

A. $0

B. $17,900

C. $27,900

D. $35,900

Answer 1

Answer :

Loss deducted = B. $ 17,900

WORKING NOTES -

Calculation of loss Mr. and Mrs. Washington can claim in 2018 (assuming return is filed jointly) :

Particulars	Amount
Adjusted basis of home (given) (I)	$ 110,000
Fair market value before flood	$ 150,000
Fair market value after flood	$ (30,000)
Decrease in FMV after flood (II)	$ 120,000
Loss of real property [smaller of (I) or (II)]	$ 110,000
Less : Insurance reimbursement received	$ (80,000)
Less : Replacement received	$ ( 8,000)
Loss after reimbursement	$ 22,000
Less : ** $ 100	$   (100)
Loss after $ 100 rule	$ 21,900
Less : ** 10% of AGI $ 40,000	$  (4,000)
Loss to be deducted	$ 17,900

** ($ 100 rule and 10% rule is applied)