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:

Warm and Cold Receptors

Sensory nerve endings in the skin that respond to temperature changes, with some responding to warmth and others to coolness.

Temperature

A physical quantity expressing hot and cold, measured by a thermometer and determined by measuring the kinetic energy of the particles of an object.

Brain

The complex central organ of the nervous system, responsible for processing sensory information, regulating vital functions, and enabling thought, emotion, and memory.

Discriminating Odors

The ability to recognize and differentiate between various smells.