Riley operates a plumbing business, and this year the three-year-old van he used in the business was destroyed in a traffic accident. The van was originally purchased for $20,000 and the adjusted basis was $5,800 at the time of the accident. Although the van was worth $6,000 at the time of accident, insurance only paid Riley $1,200 for the loss. What is the amount of Riley's casualty loss deduction?

Question

Quizplus · Accepted Answer

The amount of Riley's casualty loss deduction is equal to the lesser of the adjusted basis or the decrease in fair market value. In this case, the decrease in fair market value is $6,000 - $1,200 = $4,800. Therefore, Riley's casualty loss deduction is $4,800, which is less than his adjusted basis of $5,800. Thus, the answer is D) $4,600.

Riley Operates a Plumbing Business, and This Year the Three-Year-Old