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 $23,800 and the adjusted basis was $5,325 at the time of the accident. Although the van was worth $6,380 at the time of accident, insurance only paid Riley $1,675 for the loss. What is the amount of Riley's casualty loss deduction?

Question

Quizplus · Accepted Answer

The amount of Riley's casualty loss deduction is equal to the lesser of the adjusted basis of the property or the decrease in fair market value (FMV) of the property as a result of the casualty. In this case, the adjusted basis is $5,325 and the decrease in FMV is $6,380 - $1,675 = $4,705. Since the adjusted basis is less than the decrease in FMV, the amount of Riley's casualty loss deduction is $5,325. Therefore, the correct answer is D) $3,650.

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