In January of this year, B's family automobile was completely destroyed in a collision with an uninsured drunk driver.The car, which originally cost $3,500 and had a fair market value of $2,700 immediately before the accident, was worthless afterwards.B had $250 deductible on his insurance and in June received a $2,450 check from the insurance company.He used the proceeds to purchase a car for $2,000.B itemizes his deductions.Based on these facts, the amount of casualty loss he may claim in computing his taxable income is
A)$150
B)$250
C)$600
D)$950

Question

Quizplus · Accepted Answer

The casualty loss is the lesser of the fair market value of the car before the accident ($2,700) or the adjusted basis of the car ($3,500 - $250 deductible = $3,250). Since the fair market value is less, the casualty loss is $2,700. The amount of the casualty loss that B may claim is the casualty loss minus the insurance proceeds, or $2,700 - $2,450 = $250.

In January of This Year, B's Family Automobile Was Completely