Question

What effect does a deductible casualty loss have on the adjusted basis of property?

A) Increases the adjusted basis.
B) Decreases the adjusted basis.
C) Has no effect on the adjusted basis.
D) Adjusted basis depends on the amount of the loss.

Answer 1

A deductible casualty loss decreases the adjusted basis of property.

Step-by-step explanation:

The effect of a deductible casualty loss on the adjusted basis of property is that it decreases the adjusted basis.

When a casualty loss occurs, such as damage from a fire or natural disaster, it reduces the value of the property. This reduction in value is reflected in a decrease in the adjusted basis of the property.

For example, if a property had an adjusted basis of $200,000 and experienced a deductible casualty loss of $50,000, the new adjusted basis would be $150,000.