In the current year,Marcus reports the following casualty gains and losses on personal-use property.Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty. As a result of these losses and insurance recoveries,Marcus must report
A)a net gain of $3,700.
B)a long-term gain of $4,900 on asset X;a short-term capital loss of $900 on asset Y;and a short-term capital loss of $200 on asset Z.
C)a long-term capital gain of $5,000 on asset X;a short-term capital loss of $900 on asset Y;and a short-term capital loss of $200 on asset Z.
D)a long-term capital gain of $5,000 on asset X;a short-term capital loss of $900 on asset Y;and a short-term capital loss of $300 on asset Z.

Question

In the current year,Marcus reports the following casualty gains and losses on personal-use property.Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty.  As a result of these losses and insurance recoveries,Marcus must report
A)a net gain of $3,700. 
B)a long-term gain of $4,900 on asset X;a short-term capital loss of $900 on asset Y;and a short-term capital loss of $200 on asset Z. 
C)a long-term capital gain of $5,000 on asset X;a short-term capital loss of $900 on asset Y;and a short-term capital loss of $200 on asset Z. 
D)a long-term capital gain of $5,000 on asset X;a short-term capital loss of $900 on asset Y;and a short-term capital loss of $300 on asset Z.

Quizplus · Accepted Answer

The losses on assets X and Y are treated as casualty losses and can be claimed as itemized deductions on Form 1040 Schedule A, subject to certain limitations. Since the losses exceed the insurance recoveries, Marcus can claim a casualty loss of $6,000 on asset X and $1,800 on asset Y. The loss on asset Z is also a casualty loss but since it was not covered by insurance, the entire loss of $200 is deductible.

The gain or loss on the disposition of a personal-use asset is classified as long-term or short-term depending on how long the asset was held. If the asset was held for more than one year, the gain or loss is long-term; otherwise, it is short-term.

Since the losses on assets X and Y exceed the gains, Marcus has a net capital loss of $1,100 for the year. This loss can be used to offset capital gains and up to $3,000 of ordinary income. If the loss exceeds $3,000, the excess can be carried forward to future years.

Therefore, the correct answer is C, which reflects the casualty losses and the net capital loss for the year.

In the Current Year,Marcus Reports the Following Casualty Gains and Losses