Irina's personal-use residence was destroyed in a fire in 2020. The fire was deemed a federally-declared disaster, but it is not a qualified disaster loss. Irina originally purchased the home for $250,000, and she has not made any capital improvements. Before the fire, the house was worth $500,000. After the fire, the house was worth $200,000. Irina received insurance proceeds of $200,000 as a result of the damage to the house. What amount can Irina deduct in 2020 as a result of her loss

The answer is the casualty loss deductible is $44,900

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Explanation:

Solution

Given that

Home purchased by Irina =$250,000

House worth before fire incident = $500,000

Worth of house after fore incident =$200,000

The proceeds received from insurance = $200,00

Now what amount an Irina deduct in 2020 as a result of her loss

Thus

Irina has to be allowed casualty loss deduction:

                                                               Personal

(1) Adjusted basis before disaster        $250,000

(2) FMV before casualty                        $500,000

    FMV after damage                            $200,000

(3) Decrease in EMV                              $300,000

    Loss smaller a line                            $250,000

    Less insurance proceed                   $-200,000

    Less: $100 floor for each asset       -$100

    Less: 10% of AGI (500000 * 10%)    -$5000

    The casualty loss deductible            $44,900

Hence the casualty loss deductible is $44,900

Note:

FMV =Fair market value

AGI =Adjusted gross income

EMV =Ending market value

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