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A business suffered fire damage to equipment. Repairs were $10,000 and insurance proceeds were $13,000. How should the insurance proceeds be treated for tax purposes?

The $13,000 should be included in business income.
The $13,000 should reduce the related repairs to nil and the remainder as a disposition of depreciable property.
The $13,000 should reduce the related depreciable property to nil and the remainder as a reduction of repair expense.
The $13,000 should be used to reduce the capital cost of the related asset.

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Correct answer: (B)

The $13,000 should reduce the related repairs to nil and the remainder as a disposition of depreciable property.

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