Please evaluate the facts and write a memo explaining how the loss affects the clients$$ tax return,

including the dollar amount of any allowable deduction, and how they should report the loss including

any special tax return forms that are required.

Terry and Chris live in a townhome in southwest Austin and experienced quite a bit of property damage

in the February $2021$ Snovid weather event. Here is a list of the damages that occurred on their property:

$1.$ A branch of a large oak tree fell iced over and fell on Chris$$ Tesla which was parked outside their

home. The Tesla originally cost $$65,000$ and the Tesla service division estimated that it would

cost $$30,000$ to repair the car. Chris$$ insurance company declared the car a total loss and

reimbursed the couple $$20,000.$ The Tesla was outside because they were using the garage to

store equipment and appliances from Terry$$s restaurant business that had to close at the end of

$2020$ due to covid.

$2.$ The townhouse is equipped with an interior sprinkler system in the event of fire. The pipes that

run the sprinkler system froze over and burst when their water came back after having been out

for five days. The water cascaded out of the ceiling and caused extensive damage to the structure

and the furnishings and appliances. Estimated expenses are as follows:

a$.$ Remediation of water damage to walls and ceilings $$5,000.$ Insurance paid $$4,000.$

b$.$ Estimated fair market value of furniture, personal items, and appliances in need of

replacement $($based on insurance appraisal$)=$ $$80,000,$ but they originally paid $$100,000$

for these items. They have a high deductible homeowner$$s insurance policy and were

reimbursed $$50,000$ by the insurance company for these losses.

c$.$ The restaurant equipment was uninsured since the restaurant closed so$,$ to cut costs, Terry

terminated the insurance policy. The flooding caused so much damage to the electrical

appliances that they are no longer usable. Terry originally paid $$80,000$ for these items

and they had an adjusted basis of $$50,000$ at the time of the loss $($as business property

they were depreciated on the couple$$s schedule C$).$

d$.$ The couple had to move out of their home for three weeks while they had repairs done.

They spent $$2000$ on an Airbnb in central Austin while they while they waited for the

repairs. The insurance company did not reimburse them for this cost. They spent $$2500$ to

rent a car while the Tesla was in the shop for a month getting repaired. Their insurance

policy did not reimburse this cost.

e$.$ Their AGI for $2020$ was $$325,000.$

f$.$ They estimate that their AGI for $2021$ will be $$230,000$ since Terry$$s restaurant had to

close at the end of $2020.$