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

Answer 1

Answer:Don's casualty loss deduction=$ 770

Explanation:

A  Casualty loss is an  unexpected or sudden financial loss that occurred as a result of  damage or loss of property. It will be calculated as follows

Adjusted basis at the time of accident         $1,500

Repair cost on account of accident              $2,750

Amount of casualty loss before  the adjustments $ 1,500

( which is the  Lessor of $ 1,500 and $ 2,750)

Deduct :

Reimbursements gotten from insurance         $ 730

Don's casualty loss deduction  = $ 1,500 - $ 730  = $ 770