Question

Ann Jones uses a dry-cleaning machine in her business, and it was completely destroyed by fire. At the time of the fire, the adjusted basis was $20,000 and its fair market value was $18,000. How much is Ann's loss

Answer 1

$20,000.

Step-by-step explanation:

The adjusted basis value and fair market value are used to determine an asset's worth.

The adjusted basis value simply describes the amount a property owner has invested in his or her asset. It equals the cost of acquiring the property plus the cost of maintaining it.

Fair market value of a business or asset is the general calculation to determine the value of an asset if it were to be sold.

A casualty is a sudden, unexpected, or unusual loss or damage to one's property. Examples are: hurricane, fire, tornadoes, flood, storm, car accidents e.t.c.

In case of a casualty, where the property was totally destroyed, the adjusted basis value will be calculated or used as the owner's loss.

Therefore, in Ann's case, where her business drying cleaning machine was destroyed by fire, her loss is her adjusted basis value which is $20,000.