Constance, Who Is Single, Lives in an Area That Suffered

question 926

Multiple Choice

Constance, who is single, lives in an area that suffered a major hurricane which was declared a federal disaster. Her car sustained $6,200 in damages. Constance does not expect to recover any of the loss from her insurance company. Constance's 2018 AGI is $31,000. Her casualty loss is $3,000; she has other itemized deductions of $5,200. In 2019, Constance's insurance company reimburses her $2,800. Constance's 2019 AGI is $28,000. As a result, Constance must

• A) do nothing and simply keep the $2,800.
• B) do nothing to the 2018 return but report $2,800 of income on her 2019 return.
• C) amend the 2018 return to show $0 loss and file her 2019 return to show $200 loss.
• D) amend the 2018 return to show the $200 loss.

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Definitions:

Equity Investors

Individuals or entities that invest capital in a business in exchange for ownership shares, exposing them to both the potential profits and risks of the entity.

Cost of Debt

The effective rate that a company pays on its current debt, often factored into more complex calculations to understand financial health.

Tax Deductibility

The ability to reduce taxable income through certain expenses or deductions, thus lowering the overall tax liability.

Embedded Debt Cost

The implicit interest cost contained within a leasing agreement, reflecting the leasing company's financing charges.