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QUESTION 7 In 2018, Wally had the following insured personal casualty losses (arising from one casualty...

QUESTION 7

  1. In 2018, Wally had the following insured personal casualty losses (arising from one casualty in a Federally-declared disaster area). Wally also had $42,000 AGI for the year before considering the casualty.

    Fair Market Value

    ​

    Asset

    Adjusted Basis

    Before

    After

    InsuranceRecovery

    A

    $9,200

    $8,000

    $1,000

    $2,000

    B

    3,000

    4,000

      -0-

    1,000

    C

    3,700

    1,700

    -0-

    900

    Wally’s casualty loss deduction is:

    a.

    $1,500
    b.

    $4,800
    c.

    $3,500
    d.

    $1,600

  

QUESTION 8

  1. In 2018, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?

    a.

    Mark has a $5,000 net capital gain.
    b.

    Mark has a $3,000 capital loss deduction
    c.

    Mark has a $5,000 capital loss deduction
    d.

    Mark has a $13,000 net capital gain.
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Homework Answers

Answer #1

Question 7.

As the area is federally declared disaster area,

Calculating loss ( lesser of (a) decrease in FMV or (b) adjusted basis)

Asset A Loss = 9200 or 7000 = 7000

Asset B Loss = 3000 or 4000 = 3000

Asset C Loss = 3700 or 1700 = 1700

Total loss = $11,700

What we have to subtract from loss,

1. Insurance proceeds = 2000 + 1000 + 900 = $3900

2. $100 (Per casuality event)

3. 10% of AGI = $4200

Allowable casualty loss deduction = 11700 - 3900 - 100 - 4200 = $3500 (c)

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