Question

Discussion Question USA Tax Law

1.On December 26, you received a call from your client Mike that a fire had completely destroyed the roof to his auto repair shop. The entire inside of the shop was water and smoke damaged. "At least, I don't have to pay any taxes this year!"

And your reply?

2.

In 2001, Tammy bought a home with her parents for $300,000, (assuming Tammy has 1/3 ownership). The home was upgraded for new solar panels costing $30,000. Two years later, her father died and just last year, her mother passed away. Saddened, Tammy finally moved out in January of this year. She plans to rent out the home for $3,000 per month, and had already spent $7,000 painting the house, inside and outside.

Tammy called and wanted to let you know her new situation. Her real estate agent advised her that the home was worth $570,000 when her father died, and $450,000 when her mother died. Given the fact that Tammy lives in a community property state, as her CPA, how would you advise her?

3.

You are considering selling 100 sh Johnson and Johnson to pay for your upcoming GGU tuition and books. Your parents said the stock was gifted to you by your uncle when you were born.

What do you need to find out before next tax season?

Answer 1

1.

The loss due to fire is allowed as a deduction from the revenues. If the insurance was done than the amount of insurance amount received will be subtracted from the loss and the rest will be allowed as a deduction. It is a complete procedure to calculate the amount of loss by calculating losses and depreciation and the amount of insurance amount received. Even if there is a loss due to fire, the income will not become tax free, the loss will be calculated.