Question

A tornado damaged Louise's home on August 17, this year. To restore the destroyed property she paid the following amounts:

           $80,000 to repair the damage to the house. The house originally cost $70,000 and was worth approximately $90,000 at the time of the tornado.

           Louise filed a claim with her insurance company and received $65,000. She has AGI of $30,000.

If the tornado also caused $2,000 damage to Louise's furniture and all other facts remained the same, the amount of Louise's deductible casualty loss would be:

	a.	a.        $5,000.
	b.	b.        $3,900.
	c.	c.        $7,000.
	d.	d.        $92,000.
	e.	e.        None of the above.

Answer 1

The damage to the house is of the value $82,000 ($80,000 repairs to house+$2,000 damage to furniture) but the value of damage of house can not exceed the cost of house i.e. $70,000 in this case.

The deductible casulaty loss will be allowed only if value of damage exceeds 10% of Adjusted gross Income. (i.e. AGI $30,000*10% = $3,000).

The casualty loss will not be allowed for the amount reimbursed by insurance company i.e. $65,000 in this case.

Deductible casualty loss = Value of damage - Reimbursed by Insurance company

= $70,000 - $65,000 = $5,000

Therefore the amount of Louise's deductible casualty loss would be $5,000. Hence the correct answer is a) $5,000.