Norm's car,which he uses 100% for personal purposes,was completely destroyed in an accident in 2015.The car's adjusted basis at the time of the accident was $13,000.Its fair market value was $10,000.The car was covered by a $2,000 deductible insurance policy.Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates.His adjusted gross income was $14,000 (before considering the loss).What is Norm's deductible loss?

Question

Quizplus · Accepted Answer

Norm’s deductible loss can be calculated as follows: 
Adjusted basis of the car = $13,000 
Fair market value of the car = $10,000 
Since the fair market value is less than the adjusted basis, the loss is deductible. 
Deductible loss = Adjusted basis – Insurance reimbursement – Fair market value = $13,000 – $2,000 – $10,000 = $1,000 
However, since Norm did not file a claim against the insurance policy, he did not receive any insurance reimbursement. Hence, the deductible loss is $1,000. 
Since Norm’s adjusted gross income (AGI) was $14,000, and his deductible loss of $1,000 is less than 10% of his AGI ($1,400), he can claim the entire amount as a deductible loss for the year.

Norm's Car,which He Uses 100% for Personal Purposes,was Completely Destroyed