A fire destroyed business equipment that was worth $160,000 and had a $118,100 adjusted tax basis. The equipment was uninsured. The owner can recognize a $160,000 ordinary casualty loss.

Question

Quizplus · Accepted Answer

The recognized loss is the difference between the adjusted tax basis of the equipment ($118,100) and its fair market value after the casualty (which is $0 since it was destroyed), not the original worth of the equipment. Therefore, the loss is $118,100, not $160,000.

A Fire Destroyed Business Equipment That Was Worth $160,000 and Had