Jennifer's business storage shed is damaged by a hail storm. The shed is uninsured. Its adjusted basis is $8,000. Just before the accident the shed is appraised for $10,000. In its damaged condition, the shed can be sold for $4,000. What is Jennifer's loss from the storm?

Question

Quizplus · Accepted Answer

Jennifer's loss from the storm is calculated as the lesser of the adjusted basis or the decrease in fair market value due to the damage.

Since the appraised value just before the accident was $10,000 and the shed can now only be sold for $4,000, the decrease in fair market value is $6,000 ($10,000 - $4,000).

Therefore, Jennifer's loss is $6,000, which is the lesser of the adjusted basis ($8,000) and the decrease in fair market value ($6,000).

Option C is the correct answer.

Jennifer's Business Storage Shed Is Damaged by a Hail Storm