Last Year, Sarah (Who Files as Single) Had Silverware Worth

Last year, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home. Sarah's insurance company told her that her policy did not cover the theft. Sarah's other itemized deductions last year were $10,000. She had AGI of $30,000 last year. In August of the current year, Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000. Determine the tax treatment of the $5,000 received by Sarah during the current year.

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.
E) None of the above.

Correct Answer:

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