Question

**For tax year 2018** During the current year, an office desk used by Pat in his business was completely destroyed by a fire. The adjusted basis of the desk was $900 (original cost of $1,500 less accumulated depreciation of $600). Pat received $500 from his insurance company, but he did not replace the desk.

a.	What is the amount of Pat's recognized gain or loss (deduction) as a result of the casualty?
b.	Assuming this is Pat's only casualty gain or loss for the year, what is the nature of the gain or loss?

Answer 1

Ans. a: Amount of gain or loss is calculated as follows :

Book value of desk - claim received from insurance company.

In this question, Book value of desk is 900 dollar and pat received 500 dollar from his insurance company. Therefore, Amount of recognized loss (deduction) as a result of the casualty = 900-500 = 400 dollar.

Ans. b: Nature of loss is revenue loss because it is an abnormal loss. Desk is used by pat in its day to day business. Therefore, it will not be considered as an capital loss.