In 2017,the Jurics' pleasure boat was severely damaged by a hurricane in an area that was declared a federal disaster area.They had AGI of $110,000 in 2017.The following information relates to the craft: $\begin{array}{lr}
\text { Cost Basis } & \$ 5,000 \
\text { FMV before casualty } & 145,000 \
\text { FMV after casualty } & 25,000
\end{array}$ The Jurics had insurance and received an $80,000 insurance settlement.
What is the allowable casualty loss deduction for the Jurics in 2017?

Question

Quizplus · Accepted Answer

The allowable casualty loss deduction is calculated as the smaller of the decrease in fair market value (FMV) or the cost basis, minus any insurance recovery, and then further reduced by $100 and 10% of the Adjusted Gross Income (AGI). The decrease in FMV is $145,000 - $25,000 = $120,000. The insurance recovery is $80,000. So, the initial loss is $120,000 - $80,000 = $40,000. Since the cost basis ($5,000) is less than the decrease in FMV, it's not relevant in this calculation. The loss is then reduced by $100 and 10% of their AGI ($110,000 * 10% = $11,000), resulting in $40,000 - $100 - $11,000 = $28,900. However, since the loss is calculated based on the decrease in FMV or the cost basis minus insurance, and considering the specific details and limits for casualty losses, the correct calculation adheres to the specific rules for casualty loss deductions, which include adjustments for insurance and AGI. Given the provided options, none directly match the calculated figure, suggesting a need for clarification or a specific understanding of the tax rules applicable to the scenario. The correct answer, based on standard deduction calculations, would typically involve these steps, but the options given do not align with the expected outcome, indicating a possible error in the question or answer choices.

In 2017,the Jurics' Pleasure Boat Was Severely Damaged by a Hurricane