Nancy owned business equipment with a $16,950 adjusted basis and a $7,500 FMV that was destroyed by a tornado. The equipment was uninsured. As a result of this casualty, Nancy:
A) Recognizes a $7,500 Section 1231 loss
B) Recognizes a $16,950 Section 1231 loss
C) Is allowed to deduct a $16,950 ordinary loss
D) Is allowed to deduct a $7,500 ordinary loss

Question

Quizplus · Accepted Answer

C) Nancy is allowed to deduct a $16,950 ordinary loss because the loss of uninsured business property due to a casualty (like a tornado) allows for the deduction of the adjusted basis of the property, not its fair market value (FMV).

Nancy Owned Business Equipment with a $16,950 Adjusted Basis and a $7,500