Question

Don operates a taxi business, and this year one of his taxis was damaged in a traffic accident. The taxi was originally purchased for $17,000 and the adjusted basis was $1,500 at the time of the accident. The taxi was repaired at a cost of $2,750 and insurance reimbursed Don $730 of this cost. What is the amount of Don's casualty loss deduction?

A. $1,500.
B. $2,020
C. $770.
D. $2,750
E. Don is not eligible for a casualty loss deduction.

Answer 1

Answer: $770

Step-by-step explanation:

Cost price = $17000

Adjusted basis = $1500

Repair cost = $2750

Insurance reimbursement = $730

To calculate the amount of Don's casualty loss deduction, we have to look at the adjusted basis and the repair cost which is the decline in value given in the question and choose the lesser one, then we subtract the reinsurance reimbursement. This will be:

= (Lesser of $1500 or $2750) - $730

= $1500 - $730

= $770

The amount of Don's casualty loss deduction will be $770