Olaf 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 follows:
|
Item |
Adjusted |
FMV before |
FMV after |
Insurance |
|
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 |
Because of the extensive damage caused by the tornado, the President designated the area as a disaster area.
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. Determine the amount of Olaf and Anna’s loss and the year in which they should take the loss.