Final answer:
The tax effect of the insurance proceeds for Kevin depends on the deductible. If the proceeds are higher than the deductible, there will be a tax effect. If the proceeds are lower than the deductible, there will be no tax effect.
Step-by-step explanation:
The tax effect of the insurance proceeds for Kevin can be calculated by subtracting the deductible from the proceeds. The deductible is the amount that Kevin is responsible for paying before insurance coverage applies. Let's assume the deductible is $10,000.
In case A, the insurance proceeds are $130,000. Therefore, the tax effect would be $130,000 - $10,000 = $120,000. In case B, the insurance proceeds are $5,000. Since the deductible is higher than the insurance proceeds in this case, Kevin would not have any tax effect from the casualty as the insurance proceeds would not be sufficient to cover the deductible.