Question

Belinda was involved in a boating accident in 2021. Her speedboat, which was used only for personal use and had a fair market value of $28,000 and an adjusted basis of $14,000, was completely destroyed. She received $10,000 from her insurance company. Her AGI for 2021 is $37,000. Belinda's tentative casualty loss before any limitations. Is her loss currently deductible?

Answer 1

Belinda's tentative casualty loss before any limitations is $4,000.

Belinda loss may be deductible only to the extent the loss can in such a way offset other gains.

Using this formula

Casualty loss before any limitations= (Adjusted basis - Amount received from insurance)

Where:

Adjusted basis=$14,000

Amount received from insurance=$10,000

Let plug in the formula

Casualty loss before any limitations=($14,000 - $10,000)

Casualty loss before any limitations=$4,000

Based on the above calculation Belinda loss will be deductible only to the extent the loss can offsets other personal casualty gains reason being that her loss is a personal casualty loss and the loss did not occur in a federally declared disaster area.

Belinda's personal casualty loss will only be deductible if her loss occur in a federally declared disaster area.

Inconclusion Belinda's tentative casualty loss before any limitations is $4,000 and the loss may be deductible only to the extent the loss can in such a way offset other  gains.

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