Question

In 2018, Woodrow had a salary of $30,000 and experienced the following losses:

Loss from damage to rental property $(10,000)
Loss from theft of securities (5,000)
Personal casualty gain 4,000
Personal casualty loss (after $100 floor) (3,000)

The amount of Woodrow's itemized deduction from these losses would be:
a. $2,900.
b. $0.
c. $2,800.
d. $4,580.
e. None of these choices are correct.

Answer 1

The amount of Woodrow's itemized deduction from these losses would be $4,900.

Step-by-step explanation:

To determine the amount of Woodrow's itemized deduction from the losses, we need to consider the rules and limitations for each type of loss.

Loss from damage to rental property (-$10,000): This loss is limited to the lesser of the adjusted basis of the property or the decrease in the fair market value. Assuming the adjusted basis is higher than the decrease in fair market value, the deduction would be $10,000.

Loss from theft of securities (-$5,000): This loss is deductible as a miscellaneous itemized deduction subject to a 2% floor. However, in 2018, miscellaneous itemized deductions, including theft losses, are suspended due to tax law changes. Therefore, there is no deduction for this loss.

Personal casualty gain ($4,000): This amount would increase Woodrow's taxable income and is not deductible.

Personal casualty loss (-$3,000): This loss is deductible as a miscellaneous itemized deduction subject to a $100 floor. After applying the floor, the deduction would be $2,900.

Adding up the deductions for the losses, Woodrow's total itemized deduction from these losses would be $12,900 - $5,000 - $3,000 = $4,900.