Question 1

A taxpayer's home was destroyed by a federally declared disaster. The adjusted basis was $200,000. The FMV before the disaster was $300,000, and $0 after. Insurance paid $250,000. What is the deductible casualty loss (before AGI limitations)?

Accepted Answer

Casualty Loss = Lesser of Decline in FMV or Basis, MINUS Insurance. If Insurance > Basis, it's a GAIN.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Calculating loss based on FMV ($300k) minus Insurance ($250k) = $50k loss. You can't lose un-taxed appreciation.

A taxpayer's home was destroyed by a federally declared disaster. The adjusted basis was $200,000. The FMV before the disaster was $300,000, and $0 after. Insurance paid $250,000. What is the deductible casualty loss (before AGI limitations)?

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Full Answer

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