Barney's sailboat is destroyed in an unusual accident.The sailboat,which he used for personal purposes,caught fire forcing him and his friends to jump ship and swim for shore.The boat exploded and sank.Barney purchased the boat in 1998 for $75,000.At the time that it is destroyed,the boat has a value of $45,000.Barney's insurance company pays him $25,000 in full settlement of this loss.Barney's adjusted gross income is $60,000.If this is his only casualty loss during the year,what amount can he deduct as a casualty loss?

Question

Quizplus · Accepted Answer

The deductible casualty loss is calculated as follows: The loss is the lesser of the decrease in value ($45,000) or the adjusted basis ($75,000). The insurance reimbursement is $25,000, so the loss is $45,000 - $25,000 = $20,000. The deductible amount is $20,000 - $100 (per incident reduction) = $19,900. However, since the loss is subject to a 10% of AGI floor, $60,000 * 10% = $6,000. Therefore, the deductible casualty loss is $19,900 - $6,000 = $13,900.

Barney's Sailboat Is Destroyed in an Unusual Accident