Alicia was involved in an automobile accident in 2010.Her car was used 50% for business and 50% for personal use.The car had originally cost $40,000.At the time of the accident,the car was worth $20,000 and Alicia had taken $8,000 of depreciation.The car was totally destroyed and Alicia had let her car insurance expire.If Alicia's AGI is $50,000 (before considering the loss),determine her itemized deduction for the casualty loss.

Question

Quizplus · Accepted Answer

Alicia's casualty loss is calculated as follows:
$20,000 (fair market value before the accident) - $8,000 (accumulated depreciation) - $0 (amount of insurance reimbursement) = $12,000 (amount of loss)
Since the car was used 50% for business and 50% for personal use, only 50% or $6,000 of the loss is deductible. In addition, casualty losses are deductible only to the extent that they exceed 10% of AGI, or $5,000 in this case (10% of $50,000). Therefore, Alicia can deduct $6,000 - $5,000 = $1,000 on Schedule A as an itemized deduction. In addition, since Alicia's car insurance had expired, she may face penalties or fines for driving without insurance.

Alicia Was Involved in an Automobile Accident in 2010