Jarrett owns a mountain chalet that he purchased in 2008 for $175,000.This year,the home appraised at $300,000.Shortly after the appraisal,a severe blizzard hit the area in spring of the current year,destroying trees and severely damaging several homes,including Jarrett's chalet.The blizzard was declared a federal disaster.The chalet's value was reduced to $135,000.Jarrett does not have insurance.Jarrett's AGI is $200,000.Jarrett's deductible loss after limitations is
A)$135,000.
B)$144,900.
C)$164,900.
D)$165,000.

Question

Quizplus · Accepted Answer

Jarrett's deductible loss is calculated as the lesser of the decrease in value of the property or the cost of the property minus the value after the disaster. 
Decrease in value - $300,000 (appraised value) - $135,000 (post-disaster value) = $165,000 decrease in value 
Cost of property minus value after disaster - $175,000 (cost) - $135,000 (post-disaster value) = $40,000 
The deductible loss is the lesser of the two, which is $40,000. However, there are limitations on the deduction based on Jarrett's AGI. The reduction is calculated as follows: 
- Subtract $100 from Jarrett's AGI ($200,000 - $100 = $199,900) 
- Multiply the decrease in value by 10% of the adjusted AGI ($165,000 x 0.10 = $16,500) 
- Subtract the amount in step 2 from the amount in step 1 ($199,900 - $16,500 = $183,400) 
- Compare the amount in step 3 to the deductible loss ($40,000) and take the lesser of the two ($40,000) 
Therefore, the deductible loss after limitations is $40,000.

Jarrett Owns a Mountain Chalet That He Purchased in 2008