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14 January, 15:50

Drake operates a trucking business, and one of his trucks was damaged in a traffic accident. The truck was purchased for $52,000 and the adjusted basis was $22,000 at the time of the accident. The truck was repaired at a cost of $5,000 and insurance reimbursed Drake $2,000 of this cost. What is the amount of Drake's casualty loss deduction?

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  1. 14 January, 19:01
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    The amount of Drake's casualty loss deduction is $3,000

    Explanation:

    The deduction amount would be less of the adjusted basis or net cost of the truck

    where,

    Adjusted basis = $22,000

    And, the net cost would be equal to

    = Repair cost - reimbursement cost of insurance

    = $5,000 - $2,000

    = $3,000

    So, by comparing both the amounts, the $3000 would show a lesser amount than adjusted basis ($22,000)

    And, the purchase cost of the truck would be ignored. Thus, it is not considered in the computation part.
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