Question

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.

Answer 1

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

Business machinery:

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