Assume that the sawmill in Problem 58 was damaged by the fire but not completely destroyed. Just before the fire the sawmill had a fair market value of \(\$ 50,000\) and immediately after the fire its fair market value was \(\$ 3,500\).

a. Under these facts, John's loss is limited to how much?

b. Had the fair market value of the sawmill been \(\$ 80,000\) just before the fire and \(\$ 10,000\) just afterward, how much is John's deductible casualty loss?

Problem 58

John Henderson's portable sawmill was completely destroyed by a fire and he carried no insurance on the property. The adjusted basis for depreciation of the sawmill building and equipment at the time of the fire was \(\$ 65,000\), and its fair market value was \(\$ 50,000\). The value of the equipment after the fire was only scrap value, amounting to \(\$ 200\). How much is Mr. Henderson's deductible casualty loss?