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 $32,000 and the adjusted basis was $2,000 at the time of the accident. The taxi was repaired at a cost of $2,500 and insurance reimbursed Don $700 of this cost. What is the amount of Don's casualty loss deduction?A. $1,300.B. $2,500.C. $1,800.D. $2,000.E. Don is not eligible for a casualty loss deduction.

Answer 1

Answer:

Option (A) is correct.

Explanation:

Given that,

Purchasing price of taxi = $32,000

Adjusted basis = $2,000 at the time of the accident

Cost of repair = $2,500

Insurance reimbursed Don = $700

Lesser of Adjusted basis at the time of the accident and Cost of repaired is the amount of causality loss before adjustments.

So, lesser amount is $2,000 as compared to the cost of repair ($2,500).

Therefore,

Amount of causality loss before adjustments = $2,000

Hence,

Don's casualty loss deduction:

= Amount of causality loss before adjustments - Insurance reimbursed

= $2,000 - $700

= $1,300