Olaf owns a 500-acre farm is Minnesota. A tornado hit the area, destroying a farm building and some farm equipment and damaging a barn. Fortunately for Olaf, the tornado occurred after he had harvested his corn crop. Applicable information is as follows:
Item Adjusted basis FMV before FMV after Insurance proceed
Building $90,000 $70,000 $0 $70,000
Equipment 40,000 50,000 0 25,000
Barn $90,000 $120,000 $70,000 $25,000
Because of the extensive damage cause by the tornado, the president of the U.S designated the area as a disaster area. Olaf, who files a joint return with his wife, Anna, had $174,000 of taxable income last year. Their taxable income for the current year, excluding the loss from the tornado, is $250,000.
Determine the amount of Olaf and Anna's loss and the year in which they should take the loss.