The following question was on one of my RTRP Practice Exams:
Question:
Frank's car was completely destroyed in an automobile accident for which Frank was at fault. He did not file a claim with his insurance company because he feared his premiums would be raised. His loss was $4,500. His policy had a $1,000 deductible. How much casualty loss can Frank claim on his return (before the deduction limits)?
A. $0
B. $4,500
C. $3,500
D. $1,000
Rationale:
If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. Otherwise, you cannot deduct this loss as a casualty or theft. The portion of the loss usually not covered by insurance (for example, a deductible) is not subject to this rule. Therefore, ONLY the $1,000 deductible can be claimed.
Correct Answer: D
From Publication 17: Nondeductible losses. A casualty loss is not deductible if the damage or destruction is caused by the following:
· Accidentally breaking articles such as glassware or china under normal conditions.
· A family pet.
· A fire if you willfully set it or pay someone else to set it.
· The taking of money or property through fraud or misrepresentation
· A car accident if your willful negligence or willful act caused it. The same is true if the willful act or willful negligence of someone acting for you caused the accident.
· Progressive deterioration.
Question: If Frank was at fault for the accidient, isn't that willful negligence, making any loss nondeductible?
What is the definition of "willful negligence"? To me, Frank was willfully driving a car, and negligent when he caused an accident.
Expert Level Question
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