During the current year, Horace’s personal residence is damaged by a tornado. It had an adjusted basis of $40,000 before the tornado. The cost of repairing the damage is $11,000. Horace’s insurance company reimburses him $8,000 for the repairs. Horace itemizes his deductions and has an adjusted gross income of $23,000 for the year.

Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.