In February 2019,the storage building used in Amelia's business is damaged by a windstorm.It had an adjusted basis of $150,000 at that time.Due to changing insurance companies,the building had been appraised recently,with a resulting FMV of $200,000.After the storm,the building appraised at $120,000.Amelia has received no insurance reimbursement by December 31,but expects to recover 90 percent of the loss.In the subsequent year,the insurance company pays Amelia $50,000.Amelia's AGI is $85,000 in 2019,and her 2020 AGI is $80,000.Amelia suffers no other casualty losses in either year.Amelia may deduct

Question

Quizplus · Accepted Answer

Amelia can deduct the loss as a casualty loss on her tax return, subject to certain limitations.

In 2019, Amelia can deduct the lesser of the adjusted basis ($150,000) or the decline in FMV ($80,000), minus $100, to account for the deductible portion. Therefore, her 2019 casualty loss is calculated as follows:

$80,000 decline in FMV - $100 = $79,900
$79,900 is less than the adjusted basis of $150,000, so that is the deductible amount.
But Amelia's AGI of $85,000 reduces her deduction by $50,000 (10% of AGI), leaving her with a 2019 casualty loss deduction of $8,000.

In 2020, Amelia receives a reimbursement of $50,000 from the insurance company. 
Her loss is reduced by $50,000 (the reimbursement she received). Therefore, she can deduct the remaining loss of $70,000 ($150,000 adjusted basis minus $80,000 FMV after the storm) in 2020.
 
Amelia’s 2020 casualty loss is $70,000 minus $100, or $69,900. However, she cannot deduct any amount of the loss since her AGI of $80,000 is less than the $79,900 deductible loss. Therefore, the answer is B as that is the only possible option.

In February 2019,the Storage Building Used in Amelia's Business Is