Question

Riley operates a plumbing business and this year the 3-year old van he used in the business was destroyed in a traffic accident. The van was originally purchased for $22,600 and the adjusted basis was $5,475 at the time of the accident. Although the van was worth $6,260 at the time of accident, insurance only paid Riley $1,525 for the loss. What is the amount of Riley's casualty loss deduction?

a.$5,105

b.$3,950

c.$6,260

d.$16,340

e.$5,475

Answer 1

The correct answer is option (b).

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:

Purchased Cost = $ 22,600

Adjusted Basis = $5,475

Value of the van = $6,260

Insurance repaid = $1,525

So, we can calculate the Riley's casualty Loss deduction by using following formula:

Riley's Casualty Loss Deduction = Adjusted Basis - Insurance Repaid

By putting the value, we get

= $5,475 - $1,525

= $ 3,950