Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Olaf lives in the state of Minnesota. In May 2021, a tornado hit the area and damaged his home and automobile. Applicable information is as
Olaf lives in the state of Minnesota. In May 2021, a tornado hit the area and damaged his home and automobile. Applicable information is as follows: FMV Adjusted Basis FMV before Insurance Proceeds Item after Home $350,000 $500,000 $100,000 $280,000 Auto 60,000 40,000 10,000 20,000 Because of the extensive damage caused by the tornado, the President designated the area a Federal disaster area. Olaf and his wife, Anna, always file a joint return. Their 2020 tax return shows AGI of $180,000 and taxable income of $145,000. In 2021, their return shows AGI of $300,000 and taxable income (exclusive of the casualty loss deduction) of $225,000. Assume the taxpayers are in the 22% tax bracket in 2020 and the 24% tax bracket in 2021. Determine the amount of Olaf and Anna's loss and the year in which they should take the loss. Item Amount of Loss Home $ Auto Total loss $ Less: statutory floor amount Loss before statutory % of AGI Amount of loss on last year's return: Loss Less: statutory % of AGI Total loss $ Amount of loss on current year's return: Loss $ Less: statutory % of AGI Total loss $ Olaf and Anna should include the loss on the return, because the tax savings is greater
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started