Question

# Jonathan has the following separate casualties during the year: Decrease in Fair Market Value Adjusted Basis...

Jonathan has the following separate casualties during the year:

 Decrease in Fair Market Value Adjusted Basis Insurance Reimbursement Holding Period Personal furniture \$2,000 \$3,000 \$1,600 3 months Personal jewelry 3,000 1,800 2,500 8 years Business machinery 15,000 14,000 10,000 3 years

Calculate the amount and nature of Jonathan's gains and losses as a result of these casualties.

 Amount of Gain or Loss Gain or Loss Personal furniture \$ Short-term loss Personal jewelry \$ Long-term gain Business machinery \$ Long-term loss

Personal casualty gains and losses:
Since there is an overall net personal casualty gain of \$, the gain or loss on each item of personal property is treated as a capital gain or loss.

Business casualty gains and losses:
There is a business ordinary loss of \$.

The capital gain and capital loss are netted with other capital gains and losses for the year.

Personal Furniture:

Loss in market value = \$2,000

Less:Insurance reimbursed = (\$1,600)

Remaing loss = \$400

Subtract \$100(rule) =(\$100)

Loss after \$100 rule =\$300

Personal Jewelry:

If Insurance reimbursement is morethan adjusted basis, In that case gain has to be recognised. In this case gain=\$2,500-1,800=\$700

Loss in market value = \$15,000

Less:Insurance reimbursed = (\$10,000)

Remaing loss = \$5,000

Subtract \$100(rule) =(\$100)

Loss after \$100 rule =\$4,900

Since there is an overall net personal casualty gain of \$400(\$700-300), the gain or loss on each item of personal property is treated as a capital gain or loss.

There is a business ordinary loss of \$4,900

The capital gain and capital loss are netted with other capital gains and losses for the year. So overall capital loss=\$4,900-400=\$4,500

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