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Determine the tax treatment

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Question - Nancy had a painting worth $10,000 (basis $6,000) stolen from her lake house in 2017. Her insurance company told her that her policy did not cover the theft. Nancy's other itemized deductions were $2,000, and she had AGI of $30,000 in 2017. In March 2020, Nancy's insurance company decided that Nancy's policy did cover the theft and they paid Nancy $5,000. Determine the tax treatment of the $5,000 received by Nancy during 2020.

A. None of the $5,000 should be included in gross income.

B. $2,900 should be included in gross income.

C. $5,000 should be included in gross income.

D. Last year's return should be amended to include the $5,000

Reference no: EM132705250

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