This summer,Rick's home (which has a basis of $80,000)is damaged by a tornado which was declared a federal disaster.An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado.Rick estimates that the insurance company will reimburse him for 60% of the loss.Next year,the insurance company pays Rick $20,000.Rick's current year's AGI is $50,000 and his next year's AGI is $55,000.Rick suffers no other casualty losses in either year.After limitations,Rick may deduct a casualty loss this year of

Question

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The casualty loss is calculated as the lesser of the decrease in FMV ($35,000) or the adjusted basis ($80,000). The loss is $35,000. Rick expects to be reimbursed 60% of the loss, which is $21,000. The deductible loss is $35,000 - $21,000 = $14,000. After the $100 reduction and 10% of AGI limitation ($5,000), the deductible loss is $14,000 - $100 - $5,000 = $8,900.

This Summer,Rick's Home (Which Has a Basis of $80,000)is Damaged