For Each of the Following Situations, Determine Whether the Item

Essay

For each of the following situations, determine whether the item is deductible, and discuss any limitations that might be placed on the deduction.
Rioters damage Margarita's business building, which has an adjusted basis of $50,000, during the current year.
a.Assume the building is totally destroyed. The cost of replacing the building is estimated to be $55,000. Margarita's insurance reimburses her $32,000.
b.Assume the building is severely damaged. Before the riot, the building is worth $55,000. The insurance adjuster estimates the value of the building after the damage at $20,000. Margarita's insurance reimbursed her $32,000.