Jerome Owns a Farm, Which Has Three Separate Houses

Multiple Choice

Jerome owns a farm, which has three separate houses. He rents out two of the houses and lives in the other house. During 2018, a tornado, a federally-declared disaster, goes through his property causing damage to the houses. Rental House A had a fair market value of $40,000 and an adjusted basis of $20,000, but it is not damaged by the tornado. A local real estate agent told Jerome that because of the tornado, property values in the area have declined 10%. Rental House B, which has an adjusted basis of $25,000, is worth $60,000 before the tornado and $20,000 after the tornado. Jerome's insurance company pays him $20,000 for the damage to Rental House B. Jerome's residence (which has an adjusted basis of $80,000) was worth $70,000 before it is totally destroyed by the tornado. Jerome's insurance company reimburses him $60,000 for the loss of his residence. Ignore the limitation based on Adjusted Gross Income.
I.Jerome deducts a loss of $5,000 on Rental House A.
II.Jerome deducts a loss of $35,000 on Rental House B.
III.Jerome's loss on his residence is $9,900.
IV.Jerome cannot deduct a loss on Rental House A.
​

A) Only statement I is correct.
B) Only statement II is correct.
C) Only statement III is correct.
D) Statements II and IV are correct.
E) Statements III and IV are correct.