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 $800. What is the maximum amount that Amy can claim as a casualty loss deduction?

1) $800
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 $800, per tax rules allowing for the deduction of the lesser amount between the cost of repair and the tax basis of the asset.

Step-by-step explanation:

For partial destruction of a business asset, Amy can claim a casualty loss deduction for the lesser of the economic loss or the tax basis of the machine. In this specific instance, Amy can deduct $800 as a casualty loss deduction. Therefore, the maximum amount that Amy can claim as a casualty loss deduction is $800.

This is because the Internal Revenue Service (IRS) allows taxpayers to claim the lesser of the two values: the cost to repair the property (economic loss), or its tax basis (what was initially paid for the asset adjusted for improvements and depreciation).