Ford's automobile that he uses 100% for business is vandalized. The adjusted basis before the vandalism is $3,000. The fair market value of the car before the vandalism is $7,000, and the fair market value of the property after the vandalism is $2,000. Ford's insurance does not cover vandalism. What is Ford's loss deduction for the year?
A)$- 0 -
B)$1,000
C)$2,000
D)$3,000
E)$5,000

Question

Quizplus · Accepted Answer

The loss deduction is calculated as the lesser of the adjusted basis or the decrease in fair market value due to the vandalism. The decrease in fair market value is $5,000 ($7,000 - $2,000), but the adjusted basis is $3,000. Therefore, Ford's loss deduction is $3,000, the lesser amount.

Ford's Automobile That He Uses 100% for Business Is Vandalized