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:

Secondary Research

The analysis and interpretation of existing data or information that was collected by someone else, as opposed to primary research where data is collected firsthand.

Historical Documents

Original records and texts that pertain to past events, serving as evidence or sources of history.

Hypothesis

A proposed explanation made on the basis of limited evidence as a starting point for further investigation.

Variable

An element, feature, or factor that is liable to vary or change; used in statistics and research to measure and analyze differences.