Question

After determining the loss on each of the assets affected by the casualty, the taxpayer must further reduce the loss by any ______ the individual is eligible to receive.

Answer 1

A taxpayer must reduce the casualty loss by any insurance reimbursement they are eligible to receive before claiming it on their tax return.

Step-by-step explanation:

A student has asked about how to calculate a casualty loss for tax purposes. After determining the loss on each of the assets affected by the casualty, the taxpayer must reduce the loss by any insurance reimbursement the individual is eligible to receive. This means that any compensation from insurance or other sources meant to offset the loss must be subtracted from the initial loss amount before claiming a casualty loss deduction on a tax return. The rationale is that the taxpayer should not benefit from a tax deduction for a loss that has been compensated for by insurance.