Don operates a taxi business, and this year one of his taxis was damaged in a traffic accident. The taxi was originally purchased for $19,000 and the adjusted basis was $1,000 at the time of the accident. The taxi was repaired at a cost of $3,000 and insurance reimbursed Don $760 of this cost. What is the amount of Don's casualty loss deduction?

Question

Quizplus · Accepted Answer

The casualty loss deduction is calculated as the repair cost minus the insurance reimbursement: $3,000 - $760 = $2,240. However, since the adjusted basis of the taxi is $1,000, the deduction is limited to the lesser of the adjusted basis or the net repair cost, which is $1,000. The correct deduction is $240, which is the difference between the adjusted basis and the insurance reimbursement.

Don Operates a Taxi Business, and This Year One of His