On July 24 of the current year, Trevor Pickard was involved in an accident with his business

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On July 24 of the current year, Trevor Pickard was involved in an accident with his business use automobile. Trevor had purchased the car for $30,000. The automobile had a fair market value of $20,000 before the accident and $8,000 immediately after the accident. Trevor has taken $20,000 of depreciation on the car. The car is insured for the fair market value of any loss. Because of Trevor’s history, he is afraid that if he submits a claim, his policy will be canceled. Therefore, he is considering not filing a claim. Trevor believes that the tax loss deduction will help mitigate the loss of the insurance reimbursement. Trevor’s current marginal tax rate is 35%. 

Write a letter to Trevor that contains your advice with respect to the tax and cash-flow consequences of filing versus not filing a claim for the insurance reim-bursement for the damage to his car. Also prepare a memo for the tax files. Trevor’s address is 450 Colonel’s Way, Warrensburg, MO 64093.

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South-Western Federal Taxation 2022 Individual Income Taxes

ISBN: 9780357519073

45th Edition

Authors: James C. Young, Annette Nellen, William A. Raabe, Mark Persellin, William H. Hoffman

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