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18 May, 14:23

Linda installed a special pool for the hydrotherapeutic treatment of severe arthritis, as prescribed by her doctor. The cost of installing the pool was $20,000, and her insurance company paid $5,000 toward its cost. The pool increased the value of Linda's house by $7,000, and it has a useful life of 10 years. How much of a deduction (before any AGI limitations) is Linda entitled to in the year of installation of the pool? $

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  1. 18 May, 16:14
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    Linda is entitled to a deduction of $14,300 in the year of installation of the pool

    Explanation:

    Step 1: Determine total installation cost

    total installation cost=installation-insurance

    where;

    installation cost=$20,000

    insurance cost=$5,000

    replacing;

    total installation cost=20,000-5,000=15,000

    total installation cost=$15,000

    Step 2: Determine annual increase in house value

    annual increase in house value=increase in house value/useful life

    where;

    increase in house value=$7,000

    useful life=10 years

    replacing;

    annual increase in house value=7,000/10=$700

    Step 3: Determine total deductions

    total deductions=installation cost-annual increase in house value

    where;

    installation cost=$15,000

    annual increase in house value=$700

    replacing;

    total deductions=15,000-700=$14,300

    Linda is entitled to a deduction of $14,300 in the year of installation of the pool
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