Problem $7-38($LO$.3,4)$

On February $20,2024,$ Trevor Pickard was involved in an accident with his business use automobile. Trevor had purchased the car for $$30,000.$ The automobile had a fair market value of $$20,000$ before the accident and $$8,000$ immediately after the accident. Trevor has taken $$20,000$ of depreciation on the car. The car is insured for the fair market value of any loss. Because of Trevor's history, he is afraid that if he submits a claim, his policy will be canceled. As a result, he is considering not filing a claim and has come to you for advice. Trevor believes that the tax loss deduction will help mitigate the loss of the insurance reimbursement. Trevor's current marginal tax rate is $35\%.$

Question Content Area

a$.$ Complete the letter to Trevor that contains your advice with respect to the tax and cash$-$flow consequences of filing versus not filing a claim for the insurance reimbursement for the damage to his car.