Effect of the casualty on her taxable income

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Reference no: EM13991907

Marsha owns a two-family condominium in southern California that she paid $140,000 for in 1995. One unit has 2,400 square feet of space, and the other has 1,600 square feet. Marsha uses the 2,400-square-foot unit as a vacation home and rents the other unit to a retired couple. During the current year, an electrical fire destroys the condominium. Because part of it was used as rental property, Marsha's insurance company reimburses her only $120,000. The fair market value of the condominium before the fire was $160,000, and her adjusted basis in the rental unit is $20,000. Assume that Marsha's adjusted gross income before considering the casualty is $55,000. Write a letter to Marsha explaining the effect of the casualty on her taxable income.

Reference no: EM13991907

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