69. Marsha owns a two family condominium in southern California that she paid $140000 for in 2001. One unit has 2400 square feet of space, and the other has 1600 square feet. Marsha uses the 2400 square foot unit as a vacation home and rents the other unit to a retired couple. During the current year, an electrical fire destroys the condominium, Because part of it was used as rental property, Marsha's insurance company reimburses her ony $120000. The fair market value of the condominium before the fire was $160000 and her adjusted basis in the rental unit is $20000. Assume that Marsha's AGI before considering the casualty is $55000. Write a letter to Marsha explaining the effect of the casualty on her taxable income.

68.Kevin is the sole proprietor of Murph's Golf Shop. During the current year, a hurricane hits the beach near Kevin's shop. His business building, which has a basis of $60000 is damaged. In addition, his personal automobile, for which he paid $22000 is damaged. Fair market values (FMV) before and after the hurricane are

Case A fmv before fmv after

building $130000 $85000

Automobile $12000 $3000

Case B

building $130000 0

Automobile $12000 0

a) What is Kevin's gross loss in each of the above cases?

b) Assume that in case A, Kevin receives $36000 from his insurance company for the building and $5000 for his automobile. What it his allowable loss?

c) Assume that the insurance proceeds are $130000 and $5000 in case B. What is the tax effect of the casualty for Kevin?