Question

Alma is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $90,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy. She has adjusted gross income of $40,000 for the year (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year

Answer 1

Answer:

$18,750

Explanation:

Given:

Adjusted amount of loss = $90,000

Fair market value = $75,000

Insurance amount received = 95% of fair Market value

Adjusted gross income = $40,000

Computation of business loss:                        

Particular                                             Amount

Adjusted amount of loss                     $90,000

Less: Insurance amount received      $71,250

($75,000 × 95%)                                                  

Business loss                                       $18,750

Therefore, the current year deduction is $18,750