Question: Jamila is involved in an auto accident during the current year that totally destroyed her car. She purchased the car 2 years ago for $28,000.

Jamila is involved in an auto accident during the current year that totally destroyed her car. She purchased the car 2 years ago for $28,000. Jamila used the car in her business 75% of the time over the past 2 years. She had properly deducted $4,000 in depreciation for the business use of the car. The fair market value of the car before the accident is $16,000. The insurance company reimburses her $12,000. Assuming that Jamila has an adjusted gross income of $45,000 during the current year before considering the effect of the auto accident, what is the effect of the accident on her taxable income?

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