Jerry sprayed all of the landscaping around his business with a pesticide in June 2022. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted basis of the plants were $15,000. Later that year, the pesticide manufacturer announced a recall of the particular batch of pesticide that Jerry used. It also announced a program whereby consumers would be repaid for any damage caused by the improper mixture. Jerry is single and reports $38,000 AGI in 2022 and $42,000 in 2023.
a. Assume that in 2022 Jerry files a claim for his losses and receives notification that payment of $15,000 will be received in 2023. Jerry receives full payment for the damage in 2023. How should the loss and the reimbursement be reported?
b. How will your answer to Part a change if in 2023 the manufacturer files for bankruptcy and Jerry receives $1,500 in total and final payment for his claim?
c. How will your answer to Part a change if the announcement and the reimbursement do not occur until late in 2023, after Jerry has already filed his tax return for 2022?