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Alaf owns a 500-acre farm in Minnesota. A tornado hit the area and destroyed a farm building and some farm equipment and damaged a barn. Fortunately for Olaf, the tornado occurred after he had harvested his corn crop.

Applicable information is as follow:

Item Adjusted FMV before FMV after Insurance
Basis Proceeds
Building $90,000 $70,000 $-0- $ 70,000
Equipment 40,000 50,000 -0- 25,000
Barn 90,000 120,000 70,000 25,000

Olaf, who files a joint return with his wife, Anna, had $174,000 of taxable income last year. Their taxable income for the current year, excluding the loss from the tornado, is $250,000.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M943312

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