Question

Frank's car was completely destroyed in an automobile accident for which Frank was at fault. He did not file a claim with his insurance company because he feared his premiums would be raised. His loss was $4,500. His policy had a $1,000 deductible. How much casualty loss can Frank claim on his return (before the deduction limits)?

A. $0
B. $4,500
C. $3,500
D. $1,000

Answer 1

Frank can claim a casualty loss of $3,500 on his return before deduction limits, calculated by subtracting his insurance policy's $1,000 deductible from the total loss of $4,500.

Step-by-step explanation:

The question revolves around the concept of casualty loss deductions on insurance claims related to automobile accidents. Frank incurred a loss of $4,500 due to a car accident for which he was at fault. However, Frank chose not to file a claim with his insurance company due to concerns about increased premiums. His insurance policy included a $1,000 deductible. When calculating casualty loss for tax purposes, the deductible amount must be subtracted from the total loss. Therefore, the amount of casualty loss Frank can claim on his return (before the deduction limits) would be the total loss of $4,500 minus the $1,000 deductible, resulting in a deductible casualty loss of $3,500.