Question

Drake operates a trucking business, and one of his trucks was damaged in a traffic accident. The truck was purchased for $52,000 and the adjusted basis was $22,000 at the time of the accident. The truck was repaired at a cost of $5,000 and insurance reimbursed Drake $2,000 of this cost. What is the amount of Drake’s casualty loss deduction?

Answer 1

Answer:

The amount of Drake’s casualty loss deduction is $3,000

Explanation:

The deduction amount would be less of the adjusted basis or net cost of the truck

where,  

Adjusted basis = $22,000

And, the net cost would be equal to

= Repair cost - reimbursement cost of insurance

= $5,000 - $2,000

= $3,000

So, by comparing both the amounts, the $3000 would show a lesser amount than adjusted basis ($22,000)

And, the purchase cost of the truck would be ignored. Thus, it is not considered in the computation part.