Don operates a taxi business, and this year one of his taxis was damaged in a traffic accident. The taxi was originally purchased for $32,000 and the adjusted basis was$2,000 at the time of the accident. The taxi was repaired at a cost of $2,500 andinsurance reimbursed Don $700 of this cost. What is the amount of Don's casualty loss deduction?

Question

Quizplus · Accepted Answer

Don's casualty loss deduction is the lesser of the decrease in the value of the property or the adjusted basis of the property. In this case, the decrease in value is $2,500 (cost of repairs not covered by insurance) minus the insurance reimbursement of $700, which equals $1,800. Since the adjusted basis of the taxi is only $2,000, the casualty loss deduction is limited to $1,800. Therefore, the correct answer is B.

Don Operates a Taxi Business, and This Year One of His