Question

For partial destruction of a business asset, Amy can claim a casualty loss deduction for the lesser of the economic loss (the cost of repair) or the tax basis of the machine. In this case, Amy can deduct $2,000. What is the maximum amount that Amy can claim as a casualty loss deduction?

1) $2,000
2) The cost of repair
3) The tax basis of the machine
4) Cannot be determined

Answer 1

The maximum amount Amy can claim as a casualty loss deduction is $2,000, which is the lesser of the cost to repair the asset or its tax basis.

Step-by-step explanation:

The question pertains to a casualty loss deduction for partial destruction of a business asset and understanding the maximum amount that can be claimed. According to the Internal Revenue Code, when there's partial damage to property, a casualty loss deduction is generally the lesser of the cost of repair or the tax basis of the damaged asset, but not more than the economic loss suffered. Since it is stated that Amy can deduct $2,000, this means the lesser of her cost to repair or the tax basis must be $2,000 or less. Therefore, the maximum amount Amy can claim as a casualty loss deduction is $2,000.