Question

Assume the same facts as in problem 46. What is FFF's allowable casualty loss deduction under each of the following situations?

-A comparable van sells for $4,000. After the accident, the insurance adjuster estimates the van was worth $1,500. The insurance company pays FFF $1,200 on the casualty.

Answer 1

The allowable casualty loss deduction for FFF in this situation is $300.

Step-by-step explanation:

The allowable casualty loss deduction for FFF in this situation can be calculated as follows:

1. Determine the adjusted basis of the van, which is the original cost of the van minus any depreciation or other adjustments.
2. Compare the adjusted basis to the lesser of the fair market value (FMV) before the casualty or the proceeds received from the insurance company. In this case, the FMV before the casualty is $1,500 and the insurance proceeds are $1,200.
3. The deductible casualty loss is the smaller of the adjusted basis or the difference between the FMV before the casualty and the insurance proceeds.

Using the given information:

• Adjusted basis of the van = Original cost of the van - Depreciation = $10,000 - $0 = $10,000
• Difference between FMV before the casualty and insurance proceeds = $1,500 - $1,200 = $300

Since the deductible casualty loss is the smaller of the adjusted basis ($10,000) or the difference ($300), the allowable casualty loss deduction for FFF is $300.