In 2017, Wally had the following insured personal casualty losses (arising from one casualty).Wally also had $42,000 AGI for the year before considering the casualty. $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\underline{\text { Fair Market Value }}$
$\begin{array}{ccccc}
\text { Asset } & \text { Adjusted Basis }& \text { Before } &\text { After }& \text { Insurance Recovery }\
\hline\text { A } & \$ 9,200 & \$ 8,000 & \$ 1,000 & \$ 2,000 \
\text { B } & 3,000 & 4,000 & -0- & 4,000 \
\text { C } & 3,700 & 1,700 & -0- & 900
\end{array}$ Wally's casualty loss deduction is:

Question

Quizplus · Accepted Answer

The calculation of Wally's casualty loss deduction involves determining the decrease in fair market value (FMV) of each asset due to the casualty, subtracting any insurance recovery, and then applying the tax rules for personal casualty losses. For each asset, the loss is the lesser of the adjusted basis or the decrease in FMV, minus insurance recovery. However, starting in 2018, under the Tax Cuts and Jobs Act, personal casualty losses are deductible only to the extent they are attributable to a federally declared disaster. Since this scenario is for 2017, we calculate the loss as follows but remember the rules might have changed:- Asset A: Decrease in FMV is $7,000 ($8,000 - $1,000), insurance recovery is $2,000, so the loss is $5,000. However, since the adjusted basis ($9,200) is higher, we use the decrease in FMV minus insurance recovery = $5,000 - $2,000 = $3,000.- Asset B: Decrease in FMV is $4,000 ($4,000 - $0), insurance recovery is $4,000, so the loss is $0 after insurance recovery.- Asset C: Decrease in FMV is $1,700 ($1,700 - $0), insurance recovery is $900, so the loss is $800 ($1,700 - $900).Adding the losses: $3,000 (A) + $0 (B) + $800 (C) = $3,800. However, personal casualty losses must be reduced by $100 per event and then further reduced by 10% of AGI ($42,000). Thus, the calculation would be $3,800 - $100 = $3,700 - ($42,000 * 10%) = $3,700 - $4,200, which would result in no deductible loss because the reduction exceeds the calculated loss. Therefore, none of the provided options accurately reflects the correct calculation based on the given information and the tax rules applicable to 2017.

In 2017, Wally Had the Following Insured Personal Casualty Losses \quad

In 2017, Wally Had the Following Insured Personal Casualty Losses $\quad$