The calculation is pretty simple actually. It is the number of steps that scare people off.
There are a maximum of 4 steps in any given example.
1) Find the loss in FMV and the decline in our adjusted basis (After the casualty), take the lower number.
2) Subtract any insurance proceeds that we have received .
3) Further subtract a flat $100.
4) Finally, subtract 10% of Our AGI.
This final number will be our Casualty Loss.
Note: The casualty has to be a “Federal Disaster”
Il demonstrate with a simple example.
Facts:
1) The adjusted basis in the home was $100,000 (It is now destroyed and worth 0)
2) The FMV decline was $150,000
3) The taxpayer received $60,000 of insurance proceeds
4) The taxpayers AGI was $90,000 .
5) It was declared a federal disaster area.
Answer:
1) The lesser of the decline in FMV and our adjusted basis loss is $100,000 (Per facts 1 and 2, $100,000 vs $150,000)
2) Take the $100,000 and subtract our insurance Proceeds of $60,000
– We are now left with $40,000
3) Subtract the flat amount of $100
– We are now left with $39,900
4) Subtract 10% of our AGI. the Subtraction will be $9,000 (($90,000 AGI x .10 = $9,000))
ANSWER – Our final number is $30,900 ($39,900 – $9,000)
I hope this helped. Good luck!
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