Norm's car,which he uses 100% for personal purposes,was completely destroyed in an accident in 2013.The car's adjusted basis at the time of the accident was $13,000.Its fair market value was $10,000.The car was covered by a $2,000 deductible insurance policy.Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates.His adjusted gross income was $14,000 (before considering the loss).What is Norm's deductible loss?

Question

Quizplus · Accepted Answer

Norm's deductible loss is calculated as follows:

Fair Market Value - Adjusted Basis - Deductible = Loss

$10,000 - $13,000 - $2,000 = -$5,000

Since the loss is negative, Norm cannot take a deductible loss for tax purposes. The answer is therefore option C: $500.

Norm's Car,which He Uses 100% for Personal Purposes,was Completely Destroyed