Question

jeoffrey had adjusted gross income of $100,000. during 2012, his personal use summer home was partially destroyed by fire. pertinent data with respect to the home follows: cost basis $100,000, value before casualty $280,000 and value after casualty $160,000. Jeoffrey was insured for 80% of his actual loss and he received the insurance settlement. what is his allowable casualty loss deduction?

Answer 1

Jeoffrey's allowable casualty loss deduction is $24,000, calculated as the actual loss of $120,000 minus the insurance recovery of $96,000.

Step-by-step explanation:

To calculate Jeoffrey's allowable casualty loss deduction, we must first determine the actual loss from the casualty. The actual loss is the difference in the home's value before and after the casualty. The value before the casualty was $280,000 and after was $160,000, so the actual loss is $280,000 - $160,000 = $120,000.

As Jeoffrey was insured for 80% of the actual loss, he would have received an insurance settlement of 80% x $120,000 = $96,000.

The allowable casualty loss deduction is the actual loss minus any insurance recovery. Therefore, Jeoffrey's allowable deduction is $120,000 - $96,000 = $24,000. However, this figure is subject to the IRS rules governing casualty losses, which may include thresholds and limitations based on a percentage of adjusted gross income.