Derrick owns a farm in eastern North Carolina. A hurricane hit the area and destroyed a farm building and some farm equipment and damaged a barn.

Due to the extensive damage throughout the area, the President of the United States declared all areas affected by the hurricane as a disaster area. Derrick, who files a joint return with his wife, had $45,000 of taxable income last year. Their taxable income for the current year is $150,000, excluding the loss from the hurricane. Calculate the amount of the loss deductible by Derrick and his wife and the years in which they should deduct the loss.

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ItemAdjusted FMV before FMV afterInsurance Basis Damage Damage Proceeds Building Equipment Barn S0 $85,000 68,000 95,000 $115,000 49,000 145,000 $55,000 15,000 35,000 95,000