REG Study Group 2020 - Page 23

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    How common is casualty losses for individuals tested? I just dont understand them at all and am thinking about giving up trying to understand it

    AUD - TBD

    BEC - TBD

    FAR - 42

    REG - Studying


    The calculation is pretty simple actually. It is the number of steps that scare people off.

    There are a maximum of 4 steps in any given example.

    1) Find the loss in FMV and the decline in our adjusted basis (After the casualty), take the lower number.
    2) Subtract any insurance proceeds that we have received .
    3) Further subtract a flat $100.
    4) Finally, subtract 10% of Our AGI.

    This final number will be our Casualty Loss.

    Note: The casualty has to be a “Federal Disaster”

    Il demonstrate with a simple example.

    1) The adjusted basis in the home was $100,000 (It is now destroyed and worth 0)
    2) The FMV decline was $150,000
    3) The taxpayer received $60,000 of insurance proceeds
    4) The taxpayers AGI was $90,000 .
    5) It was declared a federal disaster area.

    1) The lesser of the decline in FMV and our adjusted basis loss is $100,000 (Per facts 1 and 2, $100,000 vs $150,000)
    2) Take the $100,000 and subtract our insurance Proceeds of $60,000
    – We are now left with $40,000
    3) Subtract the flat amount of $100
    – We are now left with $39,900
    4) Subtract 10% of our AGI. the Subtraction will be $9,000 (($90,000 AGI x .10 = $9,000))
    ANSWER – Our final number is $30,900 ($39,900 – $9,000)

    I hope this helped. Good luck!


    For nonresidential building depreciation I assume it is a 39 year straight line. I'm trying to figure out, does mid month convention always apply to this? In the Becker book I see it comes right after and it makes it seem like that no matter when the building is purchased you use mid month for that initial month. The question I was looking at, the building was purchased February 1st. It also led me to wonder, the business the building was meant for, wasnt opened until year 3 (purchased in year 2). Do you go by the day the building was actually purchased? Or actually put in service?

    Appreciate any help!

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