25 May Question 1. Jim had a car accident in 2014 in which his car was co
Question
1. Jim had a car accident in 2014 in which his car was completely destroyed. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for business use. Jim received an insurance recovery of 70% of the value of the car at the time of the accident. If Jim’s AGI for the year is $60,000, determine his deductible loss on the car.
a. $900.
b. $2,900.
c. $3,000.
d. $9,000.
e. None of the above.
2. Norm’s car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2014. The car’s adjusted basis at the time of the accident was $13,000. Its fair market value was $10,000. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm’s deductible loss?
a. $0.
b. $100.
c. $500.
d. $9,500.
e. None of the above.
3. In 2014, Grant’s personal residence was completely destroyed by fire. Grant was insured for 100% of his actual loss, and he received the insurance settlement. Grant had adjusted gross income, before considering the casualty item, of $30,000. Pertinent data with respect to the residence follows:
Cost basis $280,000
Value before casualty 250,000
Value after casualty –0–
What is Grant’s allowable casualty loss deduction?
a. $0.
b. $6,500.
c. $6,900.
d. $10,000.
e. $80,000.
4. John had adjusted gross income of $60,000. During the year his personal use summer home was damaged by a fire. Pertinent data with respect to the home follows:
| Cost basis | $260,000 |
| Value before the fire | 400,000 |
| Value after the fire | 100,000 |
| Insurance recovery | 270,000 |
John had an accident with his personal use car. As a result of the accident, John was cited with reckless driving and willful negligence. Pertinent data with respect to the car follows:
| Cost basis | $80,000 |
| Value before the accident | 56,000 |
| Value after the accident | 20,000 |
| Insurance recovery | 18,000 |
What is John’s itemized casualty loss deduction?
a. $0.
b. $2,000.
c. $17,000.
d. $18,000.
e. None of the above.
5. In 2014, Mary had the following items:
| Salary | $30,000 |
| Personal use casualty gain | 10,000 |
| Personal use casualty loss (after $100 floor) | 17,000 |
| Other itemized deductions | 4,000 |
Assuming that Mary files as head of household (has one dependent child), determine her taxable income for 2014.
a. $13,000.
b. $14,100.
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