Casualty Loss-Garage Burned Down

[zeros]

I haven't done one of these and would appreciate any input. Client said his garage burned down and insurance didn't pay the amount he thought it was worth. He has owned the home and garage for some time.

Income: $40,000.00
Cost of Garage when he purchased house and garage (estimate) $15,000.00
Insurance Reimbursement: $10,000.00
FMV of garage before: $35,000.00
FMV of garage after: $.00
What would be his schedule A deduction?

He is coming in on Tuesday and would appreciate any advice as to what to watch for.

[AJsTax]

Loss

The loss is figured on the lessor of basis or differnce in FMV value before and after the loss.
In this example the basis of 15,000 is less than the change in FMV which is 35,000.
So the numbers are:
$15,000
- 10,000 insurance reimbursement
= $5000
less - $100 deduction
for $4900.
Now you reduce that by 10% of AGI. Don't know actual AGI, but assume it is the same $40,000 as gross income. So:
$4900
- 4000
= $900 casualty loss allowed.

[Larmil]

The loss is figured on the lessor of basis or differnce in FMV value before and after the loss.
In this example the basis of 15,000 is less than the change in FMV which is 35,000.
So the numbers are:
$15,000
- 10,000 insurance reimbursement
= $5000
less - $100 deduction
for $4900.
Now you reduce that by 10% of AGI. Don't know actual AGI, but assume it is the same $40,000 as gross income. So:
$4900
- 4000
= $900 casualty loss allowed.

Unless he was in the Midwestern Disaster Area.

[Mo Sheets]

Just Curious....

Most homeowner policies cover "replacement cost" for a garage. Was the garage not replaced or was it just "underinsured"? Was this on his personal residence or a rental property?

Mo

[zeros]

Replacement Value

I'm not sure about the exact details of this fire. He might have replacement value insurance but wasn't satisfied with the settlement. Will find out more later. In any event the deductible loss is, apparently, not figured on the appreciated value?

[David1980]

Nope, it is not calculated on the appreciated value. After all, he never claimed that appreciation in income.

[zeros]

Settlement more than basis?

If the insurance company pays the replacement cost, and is more than the basis, is there a taxable event?