Question

Hi! I am having trouble finding the correct solution to this problem. Also, I will need an explanation. I would appreciate it.

Noelle’s diamond ring was stolen in November 2017. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Noelle filed an insurance claim for the stolen ring, but the claim was denied. Because the insurance claim was denied, Noelle took a casualty loss deduction for the stolen ring on her 2017 tax return. In 2017, Noelle had AGI of $40,000. After Noelle threatened legal action in early 2019, the insurance company had a “change of heart” and sent Noelle a check for $5,000 for the stolen ring. Determine the proper tax treatment of the $5,000 Noelle received from the insurance company in 2019.

Answer 1

It can be assumed that Noelle had the diamond ring stolen as well as discovered both in 2017. Now since insurance claim was not received therefore theft loss can be taken as casualty loss for 2017 tax return. But in 2019 when Noelle received $5000 from insurance company, than it's tax benefit has to be included in Return of 2019.
It will include 3 things.
Actual loss (Cost of ring) = $8000
Deduction Floor = $100
10% AGI Floor of 2017 = (10% of $40000) = $4000

Tax benefit to be included in 2019 = ($8000 - $100 - $4000) =  $3900

THUS NOELLE SHOULD INCLUDE $3900 AS INCOME IN 2019