Harris had adjusted gross income in the current year of $126,000. During the year his personal summer home was almost completely destroyed by a cyclone. Pertinent data with respect to the home follows: Harris was partially insured for his loss and in the current year he received a $113,000 insurance settlement. What is Harris' allowable casualty loss deduction for the current year?

Question

Quizplus · Accepted Answer

To calculate the allowable casualty loss deduction, we need to compare the adjusted basis of the property (which is usually the cost of the property plus improvements) to the amount of the insurance reimbursement received. In this case, since the personal summer home was almost completely destroyed, we can consider the adjusted basis to be the cost of the property. However, since Harris was only partially insured for his loss, we need to use the following formula to calculate his allowable casualty loss deduction:

Loss = Adjusted basis - Insurance reimbursement
Loss = Cost of property - $113,000
Loss = $460,000 - $113,000
Loss = $347,000

Since Harris's adjusted gross income is $126,000, we need to use the following formula to calculate the amount of his allowable deduction:

Allowable deduction = Lesser of (the loss calculated above) or (10% of adjusted gross income)

Allowable deduction = Lesser of ($347,000) or ($12,600)
Allowable deduction = $3,300

Therefore, the correct answer is B) $3,300.

Harris Had Adjusted Gross Income in the Current Year of $126,000