Question

Gwen had the following occur in the current year:

Car wreck: repairs were $2,000, insurance paid $1,000.
Theft of boat from lake house in December: fair market value = $10,000, cost = $15,000. She didn’t discover the theft until the next taxable year.
Storm damage to lake house: FMV before = $200,000, after = $150,000, insurance paid $20,000. The President declared the storm a federal disaster area.

If Gwen’s AGI is $60,000, what is her net casualty loss deduction in the current year?

1) $0

2) $24,800

3) $36,700

4) $41,000

5) None of these

Answer 1

Normal wear and tear or progressive deterioration over time doesn’t add up to a casualty loss. To qualify as a casualty loss, the damage, destruction or loss of property must arise from a sudden, unexpected and unusual event, like a flood, hurricane, tornado, fire, earthquake or volcanic eruption.

Casualty Loss

Lake House = $200,000 - $150,000 - $20,000 = $30,000 - $100(per wreck) = $29,900

Car wreck = $2,000 - $1,000 - $100(per wreck) = $900

Total = $29,900 + $900 - 10% of AGI ($6,000) = $24,800(2)