Otto Operates a Bakery and Is on the Cash Method

question 4

Essay

Otto operates a bakery and is on the cash method and calendar year. This year, one of Otto's ovens caught fire and was partially destroyed. Otto bought it a few years ago for $20,000 and claimed depreciation of $12,000 up to the fire. Otto was charged $4,400 for repairs to the oven but the insurance company paid Otto $1,500 for the damage. What is Otto's casualty loss deduction?

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Definitions:

Useful Life

The estimated duration of time over which an asset is expected to be usable by an organization, influencing depreciation calculations.

Economic Value

The assessment of value that a good or service offers to an economic entity.

Operating Cost

Expenses associated with the day-to-day operations of a business, including costs for materials, labor, and overhead.

Useful Life

The estimated period over which a fixed asset is expected to be usable for the purpose it was acquired.