What if you have a casualty gain?
Tax Tip of the Week
July 22, 2013
What if you have a casualty gain?
You're probably aware you can claim a deduction on your current or prior year federal income tax return for casualty losses from sudden, unexpected, and unusual events, such as tornadoes, hurricanes, and certain straight-line winds.
But what if you have a casualty gain?
Odd as it sounds, when the reimbursement from your insurance company or other payor exceeds your adjusted basis in damaged property, you have an "involuntary conversion gain." An involuntary conversion is treated as a sale and can result in taxable income. That's true even when the property is your personal home, assuming the gain is more than your allowable exclusion.
Whether the gain is currently taxable depends on several factors. For example, you could choose to replace your damaged property with similar property. Making the election allows you to postpone all or part of the tax.
In general, you have two years to replace damaged property, and you may be able to request an extension for an additional year. If your location is declared a federal disaster area, you have up to four years to make the replacement.
Please call for more information about casualty gains and losses. We'll help you get the most beneficial tax treatment.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2013
July 22, 2013
What if you have a casualty gain?
You're probably aware you can claim a deduction on your current or prior year federal income tax return for casualty losses from sudden, unexpected, and unusual events, such as tornadoes, hurricanes, and certain straight-line winds.
But what if you have a casualty gain?
Odd as it sounds, when the reimbursement from your insurance company or other payor exceeds your adjusted basis in damaged property, you have an "involuntary conversion gain." An involuntary conversion is treated as a sale and can result in taxable income. That's true even when the property is your personal home, assuming the gain is more than your allowable exclusion.
Whether the gain is currently taxable depends on several factors. For example, you could choose to replace your damaged property with similar property. Making the election allows you to postpone all or part of the tax.
In general, you have two years to replace damaged property, and you may be able to request an extension for an additional year. If your location is declared a federal disaster area, you have up to four years to make the replacement.
Please call for more information about casualty gains and losses. We'll help you get the most beneficial tax treatment.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2013
