homework 7 itemized PDF

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Problem 7-38 (LO. 3, 4) Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2019, a fire caused major damage to the building and its contents. Heather purchased the building for $800,000 and has taken depreciation of $100,000 on the business portion. At the time of the fire, the building had a fair market value of $900,000. Immediately after the fire, the fair market value was $200,000. The insurance recovery on the building was $600,000. The contents of the building were insured for any loss at fair market value. The business assets had an adjusted basis of $220,000 and a fair market value of $175,000. These assets were totally destroyed. The personal use assets had an adjusted basis of $50,000 and a fair market value of $65,000. These assets were also totally destroyed. If an amount is zero, enter "0". a. Determine the business and personal gain or loss in regard to the building and its contents. Business Personal Total

Portion $

Cost of building

$800,000

320,000

Decline in FMV

$700,000

$

✔

220,000 $

✔

280,000

✔

480,000

✔

100,000 $

$700,000

Portion

✔

Less: Depreciation (100,000)

Adjusted basis

✔

0 $

✔

480,000 $

✔

420,000

Loss on building (lesser of basis or decline in FMV)

Business

Personal

Portion

Portion

$

✔

220,000

240,000

✔

$

✔

420,000

✔

✔

Less: Insurance reimbursement

Gain on business portion

$

360,000

✔

20,000 Loss on personal portion

$

✔

✔

60,000 $

Loss on business contents

✔

220,000

✔

Less: Insurance recovery

175,000 Loss on business contents

✔

$

✔

45,000 $

Loss on personal contents

50,000

✔

Less: Insurance recovery

Gain on personal contents

✔

65,000

✔

$

✔

15,000 Feedback

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The rules for determining the amount of a loss depend in part on whether business use, income-producing use, or personal use property was involved. Another factor that must be considered is whether the property was partially or completely destroyed.

Note: In general, losses on personal use property (e.g., a car, furniture, or a residence) are not deductible. The casualty loss rules are an exception. However, from 2018 through 2025, a taxpayer can take a deduction for a personal casualty or theft loss only if the loss occurs in a Federally declared disaster area.

b. Heather's AGI is $100,000 before considering the effects of the fire. Determine her itemized deduction and AGI after considering the effects of the fire. Adjusted Gross Income AGI before the effects of the fire Business gain - building

$100,000 $

✔

20,000 ( Business loss - contents

✔

45,000 ) (

Net business casualty loss

✔

25,000 )

✔

Personal casualty gain

15,000 (

✔

Personal casualty loss to extent of gain 15,000 )

✔

Net personal casualty gain

0 $ AGI

75,000

Itemized Deduction $ Balance of personal casualty loss

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