Chapter 6. Losses-Deductions and Limits-2011. Transaction Losses: Personal Use Losses Losses from the disposition of personal use assets are generally.

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Chapter 6. Losses-Deductions and Limits-2011

Transaction Losses: Personal Use Losses Losses from the disposition of personal use assets are generally not deductible Exception exists for personal casualty and theft losses

Casualty and Theft Losses Partial or complete destruction of Personal use Property– Loss limited to the lesser of: 1. Decline in fair market value (or repair costs to restore property to pre-casualty condition) 2. The adjusted basis of the property The loss computed above is then reduced by any insurance proceeds received

Transaction Losses: Personal Casualty and Theft Losses Loss is the lesser of The property’s adjusted basis, or The decline in FMV of the property (repair cost) Loss cannot be more than FMV before event Loss is reduced by Insurance proceeds received, $500 per event (2009)(Administrative convenience), and 10% of AGI per year

John bought a family auto for $20,000. After 10 years of family use, the auto is worth $6,000. It is totally destroyed by a storm and it is not insured. John’s AGI is $50,000. What is the loss deduction?

Jane's residence was totally destroyed by fire. The property had an adjusted basis of $150,000 and a FMV of $130,000 before the fire. Jane received insurance reimbursement of $120,000 for the destruction of her home. Jane's adjusted gross income was $70,000. Jane had no casualty gains during the year. What amount of the fire loss was Jane entitled to claim as an itemized deduction on her tax return? a. $ 2,900 b. $ 8,500 c. $ 8,600 d. $10,000

The End