Alicia was involved in an automobile accident in 2016.Her car was used 60% for business and 40% for personal use.The car had originally cost $40,000.At the time of the accident,the car was worth $20,000 and Alicia had taken $8,000 of depreciation.The car was totally destroyed and Alicia had let her car insurance expire.If Alicia's AGI is $50,000 (before considering the loss),determine her itemized deduction for the casualty loss.

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The correct answer is A.The casualty loss deduction is calculated as follows:Fair market value of car at time of accident: $20,000Less: Depreciation taken: $8,000Adjusted basis of car: $12,000Percentage of business use: 60%Casualty loss deduction: $12,000 x 60% = $7,200However, the casualty loss deduction is limited to the taxpayer's AGI. In this case, Alicia's AGI is $50,000, so her casualty loss deduction is limited to $5,000.

Alicia Was Involved in an Automobile Accident in 2016