Final answer:
The deductible loss when a business asset is completely destroyed is the lower of the asset's adjusted basis or its fair market value before the casualty, minus any compensation received. The adjusted basis starts with the purchase price and is adjusted with improvements and depreciation. Insurance payouts or recoveries are subtracted to determine the ultimate deductible amount.
Step-by-step explanation:
When a business asset is completely destroyed due to a casualty, the amount of the deductible loss is typically determined by the lesser of the asset's adjusted basis or its fair market value before the casualty, minus any insurance or other compensation received. To calculate this, you must first figure out the asset's basis, which is generally what was paid for it along with any improvements, minus any accumulated depreciation. Then, compare this to the value of the asset directly before the loss occurred. In practical terms, for tax purposes, if the asset is insured and you receive compensation, you would subtract that amount from the calculated loss to find the deductible portion. If the reimbursement exceeds the basis, a gain is realized instead of a loss.