Question

In 2017, Maverick's personal residence was damaged by fire. Maverick was insured for 90 percent of his actual loss, and he received the insurance settlement. Maverick had adjusted gross income, before considering the casualty item, of $30,000. Pertinent data with respect to the residence follow:

Cost basis $170,000
Value before casualty 250,000
Value after casualty 150,000

Maverick's allowable casualty loss deduction would be:
a. $10,000.
b. $6,900.
c. $80,000.
d. $6,500.
e. $0.

Answer 1

Maverick's allowable casualty loss deduction is $18,000.

Step-by-step explanation:

To calculate Maverick's allowable casualty loss deduction, we need to determine his actual loss. The actual loss is the difference between the cost basis of the residence and the value after the casualty. In this case, the actual loss is $170,000 - $150,000 = $20,000. Since Maverick was insured for 90% of his actual loss, his insurance settlement would be $20,000 x 0.9 = $18,000.

To calculate Maverick's allowable casualty loss deduction, we need to compare the insurance settlement to his adjusted gross income (AGI). Maverick's AGI before considering the casualty item is $30,000. Since the insurance settlement is less than his AGI, Maverick can deduct the insurance settlement amount as his allowable casualty loss deduction. Therefore, the answer is $18,000.