Don operates a taxi business, and this year one of his taxis was damaged in a traffic accident. the taxi was originally purchased for $32,000 and the adjusted basis was $2,000 at the time of the accident. the taxi was repaired at a cost of $2,500 and insurance reimbursed don $700 of this cost. what is the amount of don's casualty loss deduction? a. $1,300.b. $2,500.c. $1,800.d. $2,000.e. don is not eligible for a casualty loss deduction.

Option (A) is correct.

Explanation:

Given that,

Purchasing price of taxi = $32,000

Adjusted basis = $2,000 at the time of the accident

Cost of repair = $2,500

Insurance reimbursed Don = $700

Lesser of Adjusted basis at the time of the accident and Cost of repaired is the amount of causality loss before adjustments.

So, lesser amount is $2,000 as compared to the cost of repair ($2,500).

Therefore,

Amount of causality loss before adjustments = $2,000

Hence,

Don's casualty loss deduction:

= Amount of causality loss before adjustments - Insurance reimbursed

= $2,000 - $700

= $1,300

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