Question

Thieves broke into a business owned by Tax Eagles Consulting and stole computer equipment that Tax Eagles used in its tax consulting business. Tax Eagle's adjusted basis in the equipment was $23,200, and its replacement value was $50,000. Tax Eagle's insurance carrier paid $15,000 on a claim for the theft loss. As a result, Tax Eagle recognizes:

Answer 1

Tax Eagles Consulting recognizes a theft loss deduction of $8,200, calculated by subtracting the insurance recovery amount of $15,000 from the adjusted basis of the stolen computer equipment, which was $23,200.

Step-by-step explanation:

The student is asking about a theft loss deduction and how to calculate the loss recognized by a business when insurance reimbursement is involved. Tax Eagles Consulting had computer equipment with an adjusted basis of $23,200 and a replacement value of $50,000 stolen. The insurance carrier paid $15,000 for the theft loss. To determine the recognized loss, we subtract the insurance payment from the adjusted basis of the equipment. Thus, Tax Eagles recognizes a theft loss of:

Adjusted Basis - Insurance Recovery = Recognized Loss

$23,200 - $15,000 = $8,200

Tax Eagles would recognize a loss of $8,200. This loss can typically be deducted for tax purposes subject to the applicable rules and regulations surrounding theft loss deductions.