In 2017, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home. Sarah's insurance company told her that her policy did not cover the theft. Sarah's other itemized deductions last year were $2,000. She had AGI of $30,000 last year. In August of 2018, Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000. Determine the tax treatment of the $5,000 received by Sarah during 2018.
A) None of the $5,000 should be included in gross income.
B) $2,900 should be included in gross income.
C) $5,000 should be included in gross income.
D) Last year's return should be amended to include the $5,000.
E) None of the above.

Question

Quizplus · Accepted Answer

The $5,000 received by Sarah in 2018 is not included in her gross income because it is a recovery of a loss that was previously deducted on her 2017 tax return.

In 2017, Sarah (Who Files as Single) Had Silverware Worth