This summer, Rick's home (which has a basis of $80,000) is damaged by a tornado which was declared a federal disaster. An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado. Rick estimates that the insurance company will reimburse him for 60% of the loss. Next year, the insurance company pays Rick $20,000. Rick's current year's AGI is
$50,000 and his next year's AGI is $55,000. Rick suffers no other casualty losses in either year. After limitations, Rick may deduct a casualty loss this year of
A) $8,900.
B) $9,900.
C) $15,000.
D) $35,000.
A) $8,900.
Where partial recovery is expected in a subsequent year, the loss may be deducted in the year of the casualty for the estimated unrecovered amount. Lesser of adjusted basis or loss in value [($120,000 - $85,000) - $21,000 anticipated insurance recovery - $100 floor - $5,000 (10% of AGI) = $8,900]. Anticipated recovery is 60% × $35,000 = $21,000.
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