Can someone explain how to do the math on this?
Tax Deductions on Stolen Items:
During 2012, someone broke into Jacob's personal residence and took the following items:
Asset Adjusted Basis Fair Market Value (FMV) before Fair Market Value (FMV) after Insurance Recovery
Business computer $12,000 $10,000 $ –0– $ 7,000
Bearer bonds 30,000 25,000 –0– –0–
Silverware 7,000 20,000 –0– 18,000
Cash 8,000 8,000 –0– –0–
Jacob is an employee and used the computer 100% of the time in his employment. Although his homeowner's insurance policy paid Jacob $7,000 for the stolen computer, Jacob's employer did not reimburse Jacob for any of the remainder of his loss. Jacob's AGI for the year, before considering any of the above items, is $50,000. Determine the total deduction for the stolen items on Jacob's 2012 tax return.
To determine the total deduction for the stolen items on Jacob's 2012 tax return, several calculations need to be done.
1. Business Computer:
- Adjusted Basis = $12,000
- Fair Market Value (FMV) before = $10,000
- Fair Market Value (FMV) after = $0
- Insurance Recovery = $7,000
- Loss = Adjusted Basis - Insurance Recovery = $12,000 - $7,000 = $5,000
- Since Jacob used the computer 100% of the time in his employment, the loss is considered a business loss.
2. Bearer Bonds:
- Adjusted Basis = $30,000
- Fair Market Value (FMV) before = $25,000
- Fair Market Value (FMV) after = $0
- Insurance Recovery = $0
- Loss = Adjusted Basis - Insurance Recovery = $30,000 - $0 = $30,000
- The bearer bonds were not insured, so the entire loss is considered a personal loss.
3. Silverware:
- Adjusted Basis = $7,000
- Fair Market Value (FMV) before = $20,000
- Fair Market Value (FMV) after = $0
- Insurance Recovery = $18,000
- Loss = Adjusted Basis - Insurance Recovery = $7,000 - $18,000 = -$11,000
- Since the Fair Market Value (FMV) before the theft was higher than the adjusted basis and Jacob received more in insurance recovery than the loss, there is no deductible loss for the silverware.
4. Cash:
- Adjusted Basis = $8,000
- Fair Market Value (FMV) before = $8,000
- Fair Market Value (FMV) after = $0
- Insurance Recovery = $0
- Loss = Adjusted Basis - Insurance Recovery = $8,000 - $0 = $8,000
- The loss of cash is considered a personal loss.
To calculate the deductible loss, we need to know if Jacob itemizes deductions on his tax return. If Jacob itemizes, he can deduct the total loss as an itemized deduction on Schedule A. However, if Jacob takes the standard deduction, he will not be able to deduct the personal losses (bearer bonds and cash) unless they were a result of a federally declared disaster. In that case, he can deduct only the business loss.
Note: It is always recommended to consult with a tax professional or accountant to ensure accurate tax calculations and deductions.
To determine the total deduction for the stolen items on Jacob's 2012 tax return, we need to follow a few steps:
Step 1: Calculate the Casualty Loss
The casualty loss is the difference between the FMV before the theft and the FMV after the theft, minus any insurance recovery.
For the business computer:
Casualty loss = (FMV before - FMV after) - Insurance recovery
= ($10,000 - $0) - $7,000
= $3,000
For the bearer bonds: Since there is no FMV after and no insurance recovery, the casualty loss is equal to the FMV before.
Casualty loss = FMV before = $25,000
For the silverware:
Casualty loss = (FMV before - FMV after) - Insurance recovery
= ($20,000 - $0) - $18,000
= $2,000
For the cash: Since there is no FMV after and no insurance recovery, the casualty loss is equal to the FMV before.
Casualty loss = FMV before = $8,000
Step 2: Calculate the Deductible Loss
The deductible loss is the lesser of the loss calculated in Step 1 or 10% of AGI (Adjusted Gross Income).
10% of AGI = 10% of $50,000 = $5,000
The deductible loss for each item is as follows:
For the business computer: Since the casualty loss is less than 10% of AGI, the deductible loss is the full casualty loss.
Deductible loss for the computer = $3,000
For the bearer bonds: Since the casualty loss is greater than 10% of AGI, the deductible loss is the 10% of AGI.
Deductible loss for the bearer bonds = $5,000
For the silverware: Since the casualty loss is less than 10% of AGI, the deductible loss is the full casualty loss.
Deductible loss for the silverware = $2,000
For the cash: Since the casualty loss is less than 10% of AGI, the deductible loss is the full casualty loss.
Deductible loss for the cash = $8,000
Step 3: Calculate the Total Deduction
The total deduction for the stolen items is the sum of the deductible losses for each item.
Total deduction = Deductible loss for the computer + Deductible loss for the bearer bonds + Deductible loss for the silverware + Deductible loss for the cash
= $3,000 + $5,000 + $2,000 + $8,000
= $18,000
Therefore, the total deduction for the stolen items on Jacob's 2012 tax return is $18,000.