A is corrent. Julie’s personal casualty loss of $45,000 incurred as a result of the tornado damage to her vacation home is allowed as a deduction in the computation of her NOL and is subtracted from her salary income of $40,000, to arrive at a NOL of $5,000. In the computation of a NOL, no deduction is allowed for personal and dependency exemptions, and no deduction is allowed for a net capital loss. B is incorrect. The net capital loss is not deductible in computing the NOL. C is incorrect. The capital loss and exemption are not deductible in computing the NOL. D is incorrect. The casualty loss must be reduced by her salary.
