Riley operates a plumbing business, and this year the three-year-old van he used in the business was destroyed in a traffic accident. The van was originally purchased for $23,200 and the adjusted basis was $5,400 at the time of the accident. Although the van was worth $6,320 at the time of accident, insurance only paid Riley $1,600 for the loss. What is the amount of Riley's casualty loss deduction?

Question

Quizplus · Accepted Answer

The casualty loss deduction is calculated as the lesser of the adjusted basis or the decrease in fair market value, minus any insurance proceeds. Here, the decrease in fair market value is $6,320 (the value of the van at the time of the accident), and the adjusted basis is $5,400. Since insurance paid $1,600, we subtract that from the lower of the two values ($5,400 - $1,600 = $3,800).

Riley Operates a Plumbing Business, and This Year the Three-Year-Old