Question

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident. The adjusted basis prior to the accident was $11,000. The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000. Insurance proceeds of $3,200 are received. What is Sandra's adjusted basis for the automobile after the casualty?

Answer 1

The Sandra's adjusted basis for the automobile after the casualty will be $7000.

Step-by-step explanation:

Sandra's adjusted basis after accident can be taken out using the following procedure -

ADJUSTED BASIS BEFORE ACCIDENT

-

LOSS DEDUCTION

-

INSURANCE PROCEEDS

we have been given the value of adjusted basis before accident = $11,000 and insurance proceeds as = $3200, but we have to find the value of loss deduction.

LOSS DEDUCTION =

VALUE DECLINE - INSURANCE PROCEEDS

Where value decline is the difference between the market value of automobile before and after accident and insurance proceeds - ($10,000 - $6000) - $3200

VALUE DECLINE - $4000 - $3200

= $800

Now putting all the values in the procedure -

= $11,000 - $800 - $3200

= $7000