Noelle owns an automobile which she uses for personal use. Her adjusted basis is $45,000 (i.e., the original cost). The car is worth $22,000. Which of the following statements is correct?
A) If Noelle sells the car for $22,000, her realized loss of $23,000 is not recognized.
B) If Noelle exchanges the car for another car worth $22,000, her realized loss of $23,000 is not recognized.
C) If the car is stolen and it is uninsured, Noelle will not be able to recognize part of her realized loss of $23,000.
D) Only a. and b. are correct.
E) a., b., and c. are correct.

Question

Quizplus · Accepted Answer

A) If Noelle sells the car for $22,000, her realized loss of $23,000 is not recognized because the amount realized ($22,000) is less than the adjusted basis ($45,000). Therefore, Noelle cannot claim a loss on her tax return.

B) If Noelle exchanges the car for another car worth $22,000, her realized loss of $23,000 is not recognized because she is exchanging the car for a similar property. This is known as a like-kind exchange, and Noelle will not recognize any gain or loss on the exchange.

C) If the car is stolen and it is uninsured, Noelle will not be able to recognize part of her realized loss of $23,000. This is because the loss is considered a casualty loss, and Noelle can only deduct the loss if it exceeds 10% of her adjusted gross income and if she itemizes her deductions.

Therefore, all three statements are correct, and the best answer is E.

Noelle Owns an Automobile Which She Uses for Personal Use