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Determinig Casualty and Theft Losses

1.Jackie Smith had a fur coat that cost $12,000 when purchased in 1998 and that was worth $14,000 when it was stolen on April 15, 2008. Her t.v. which cost $800 in 2003 and was worth $600, was also stolen. She received $10,000 from her insurance company for the theft of the two items. On July 20, 2008, her summer cottage was a basis of $62,000 was completely destroyed by a tornado. The insurance proceeds were $65,000. What gain or loss would Jackie recognize and how is it treated? Jackie's adjusted gross income for 2008 is $25,000.

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IRC Section 165(a) states that "There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise." IRC Section 165(b) provides that "For purposes of subsection [165(a)], the basis for determining the amount of the deduction for any loss shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property." IRC Section 165((h)(1) states that "Any loss of an individual [not related to a trade or business] shall be allowed only to the extent that the amount of the loss to such individual arising from each casualty, or from each theft, exceeds $100. " Finally, IRC Section 165(h)(2)(B) provides that "If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year ... all such gains shall be treated as gains from sales or exchanges ...

Solution Summary

This solution provides the Internal Revenue Code citations for determining the amount of casualty and theft losses and, using a Form 4684 (in PDF), the actual computation thereof.