Jim had a car accident in 2019 in which his car was completely destroyed.At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for business use.He received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000, determine his deductible loss on the car.

Question

Quizplus · Accepted Answer

Jim's deductible loss is calculated based on the lesser of the adjusted basis or the decrease in fair market value, minus any insurance recovery. Since the car was used 100% for business, the personal loss limitations do not apply. The decrease in fair market value is $30,000 (the value of the car at the time of the accident), and the adjusted basis is $40,000. The insurance recovery is 70% of $30,000, which is $21,000. The loss before insurance recovery is the lesser of the adjusted basis or the fair market value decrease, which is $30,000. Subtracting the insurance recovery ($21,000) from this amount gives a loss of $9,000. However, because the insurance covered most of the loss and the question is about deductible loss, and given the specifics provided, none of the options accurately reflect a scenario where additional tax-specific adjustments or limitations (not provided in the question) would reduce this amount to the options given. Therefore, the correct answer is that none of the provided options accurately represent the deductible loss based on the information given.

Jim Had a Car Accident in 2019 in Which His