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Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Jackie Jaguar had a fur coat that cost $12,000 when purchased

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Jackie Jaguar had a fur coat that cost $12,000 when purchased in 1998 and that was worth $14,000 when it was stolen on April 15th, 2008. Her television, 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 with a basis of $50,000 and a fair market value 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.
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.
Hello cooley,

The theft which occurred on April 15th, 2008 is treated as one incident. In determining her gain or loss, you must use the original basis of the items. In this case her basis was $12,000 for the fur coat and $800 for the TV, so Jackie had a total basis of $12,800 in the items which were stolen.

You must deduct the insurance proceeds of $10,000 from her $12,800 basis, which leaves her with a loss of $2,800. She must first deduct $100 for each incident that occured, which reduces her allowed loss to $2,700. She must then again reduce her loss by 10% of her AGI which would be $2,500, and she is now left with a reportable loss of $200. This allowed loss of $200 is taken as an itemized deduction on Schedule A.

For the summer cottage which was destroyed on July 20, 2008, Jackie actually had a gain. Her insurance proceeds of $65,000 exceed her basis of $50,000, so she has a gain of $15,000. This is treated as a long term capital gain and is reported on Schedule D of her tax return, and is subject to the long term capital gains tax rates.

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Thank you cooley.

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