Business Vehicle Lost due to Flood, Insurance Paid...
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Returning Member

Business Vehicle Lost due to Flood, Insurance Paid, Purchased another vehicle - Recognize Gain?

I had a business vehicle in 2019 (100% business) that was totaled in a flood.  Insurance paid a settlement, which I immediately turned around and used toward a purchase of another vehicle (adding $500 extra).

After Turbo-Tax calculated the mileage deduction and depreciation equivalent, and I input the Insurance Proceeds into the "Sales Price" box for the vehicle that was disposed, it shows I have a taxable gain of ~$4700.

 

However, the IRS publication 463 states the following:

Casualty or theft. For a casualty or theft, a gain results when you receive insurance or
other reimbursement that is more than your adjusted basis in your car. If you then spend all of the proceeds to acquire replacement property (a new car or repairs to the old car) within a specified period of time, you don’t recognize any gain. Your basis in the replacement property is its cost minus any gain that isn’t recognized. See Pub. 547 for more information.

 

I did NOT put that I traded it in when entering the information into TurboTax because from other forums, it looked like those were the instructions.

 

Am I right in thinking that the gain should not be recognized, per the IRS rules?  If so, how should I enter my disposal?

 
 
4 Replies
Employee Tax Expert

Business Vehicle Lost due to Flood, Insurance Paid, Purchased another vehicle - Recognize Gain?

Did the loss occur in a Federally Declared Disaster Area?

 

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Returning Member

Business Vehicle Lost due to Flood, Insurance Paid, Purchased another vehicle - Recognize Gain?

Yes it was.  Tropical Storm Imelda in Houston.  Our delivery vehicle was caught in the flood during deliveries and was totaled out by insurance.  I received a payment from the insurance company to cover the vehicle and allow me to purchase a replacement.

Employee Tax Expert

Business Vehicle Lost due to Flood, Insurance Paid, Purchased another vehicle - Recognize Gain?

Pub 547 says you can postpone the gain, not be rid of it entirely. Please see this discussion by RobertG on how to postpone the gain.

 

Postpone Gain

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Returning Member

Business Vehicle Lost due to Flood, Insurance Paid, Purchased another vehicle - Recognize Gain?

I agree that I'm only "postponing the gain", by adjusting the basis down on my new vehicle, such that when I sell that new vehicle in the future, the gain is recognized at that time.

 

However, I'm still unsure how to enter everything into Turbo Tax correctly.  As of right now, its showing I have a taxable gain in 2019.  I haven't yet gotten to the section regarding casualty losses, so perhaps I'm just not finished inputting everything.

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