8025-6CT-2P

AID:1825 | 03/09/2013

Given information:
Taxpayer purchased a automobile for $40,000, Adjusted basis value is $22,000 and That
automobile was totally destroyed in an accident. At the time value of the automobile is
$30,000

a)
Calculate taxpayers deductible loss under 165
It is given that the amount realized is $15,000 and adjusted basis is $22,000.
Now, calculate taxpayers deductible loss under 165,

Taxpayers deductible loss=Amount realized - Adjusted basis

=$15,000 - $22,000
= $7,000
(1)

$7, 000
The calculated taxpayers deductible loss is
b)
Calculate loss value.
It is given that the Fair Market Value before destroyed is $30,000 and Fair Market Value
after destroyed is $10,000.
Now, calculate loss value,

Loss value=Fair Market Value before destroyed - Fair Market Value after destroyed
=$30,000 - $10,000
=$20,000

(2)

The calculated loss value is $20,000

Calculate taxpayers deductible loss,
It is given that the insurance amount is $15,000 and calculated loss value is $20,000
(refer to Equation (2)).
Now, calculate taxpayers deductible loss

Taxpayers deductible loss=Loss value - Insurance amount

=$20,000 - $15,000
=$5,000
(3)

$5, 000
The calculated taxpayers deductible loss is
c)
Calculate new adjusted basis,
It is given that the old adjusted basis is $22,000, insurance amount is $15,000 and
calculated deductible loss is $5,000 (refer to Equation (3)).
Now, calculate new adjusted basis,

New adjusted basis= Adjusted basis - Insurance amount - Deductible loss

= $22,000 - $15,000 $5, 000
=$7,000 - $5,000
=$2,000
(4)

The calculated new adjusted basis is $2,000

Calculate total adjusted basis,

It is given that the repair expense is $17,000 and calculated adjusted basis is $2,000 (refer
to Equation (4)).
Now, calculate total adjusted basis,

Total adjusted basis=Repair expense + Adjusted basis

=$17,000 - $2,000
=$19,000
(5)

The calculated total adjusted basis is $19,000