During the year,Greta's mountain cabin was almost completely destroyed by a fire started in the kitchen.She had adjusted gross income of $110,000 in 2017 and related data with respect to the cabin follows: $\begin{array}{lr}
\text { Cost basis: }&\$121,000\\text { Value before casualty: }&\$155,000\\text { Value after casualty: }&\$15,000
\end{array}$
Greta was partially insured for the loss and in 2017 she received a $100,000 insurance settlement.What is Greta's allowable casualty loss deduction for 2017?
A)$9,900.
B)$20,000.
C)$35,900.
D)$55,000.

Question

During the year,Greta's mountain cabin was almost completely destroyed by a fire started in the kitchen.She had adjusted gross income of $110,000 in 2017 and related data with respect to the cabin follows: $\begin{array}{lr}
\text { Cost basis: }&\$121,000\\text { Value before casualty: }&\$155,000\\text { Value after casualty: }&\$15,000
\end{array}$
 Greta was partially insured for the loss and in 2017 she received a $100,000 insurance settlement.What is Greta's allowable casualty loss deduction for 2017?
A)$9,900.
B)$20,000.
C)$35,900.
D)$55,000.

Quizplus · Accepted Answer

The allowable casualty loss deduction is calculated as the lesser of the decrease in fair market value or the cost basis, minus any insurance recovery, and then further reduced by $100 and 10% of AGI. Here, the decrease in fair market value is $155,000 - $15,000 = $140,000. The cost basis is $121,000. The lesser amount is $121,000. After subtracting the insurance recovery of $100,000, the loss before the $100 and 10% AGI reductions is $21,000. Subtracting the $100 and 10% of AGI ($11,000), the allowable deduction is $9,900.

During the Year,Greta's Mountain Cabin Was Almost Completely Destroyed by a Fire