Question

Hope sustained a $3,600 casualty loss due to a severe storm. She also incurred a $800 loss from a theft in the same year. Both the casualty and theft involved personal-use property. Hope's AGI for the year is $25,000 and she does not have insurance coverage. Hope's deductible casualty loss is

A) $4,300
B) $4,200
C) $1,700
D) $1,800

Answer 1

Hope's deductible casualty loss is $4,300.

Step-by-step explanation:

Hope's deductible casualty loss can be calculated by considering her Adjusted Gross Income (AGI) and the rules for casualty losses. According to the IRS rules, a taxpayer's deductible casualty loss is calculated by subtracting $100 and 10% of their AGI from the total loss. However, the total loss cannot exceed the fair market value of the property.

Hope's AGI is $25,000. Her total loss from the severe storm is $3,600 and the loss from theft is $800. Since both losses are less than her AGI, she may deduct the full amount of both losses.

The deductible casualty loss is therefore $3,600 + $800 = $4,400. However, since the total loss cannot exceed the fair market value of the property, the deductible casualty loss is limited to $4,400 - $100, which is $4,300.