You only claim income for the reimbursement if your tax liability would have changed the year you claimed the loss, had the recovered amount not been included in the amount of loss claimed that year.
If you claimed the loss on Schedule A, but ended up using the Standard Deduction, the recovered income does not need to be reported.
If you did claim Itemized Deductions, and your Itemized Deductions were greater than the Standard Deduction by the amount of the recovery, report the recovery as income.
(in other words, if the Standard Deduction was 24,800 and your Itemized Deduction was 30,000, you were 5,200 over Standard. You receive 4,000 recovery. 4,000 is reported as income since your itemized was over by at least this much.
Instead lets say you receive 6,000 recovery. Now only 5,200 would be reported as income since you would have taken the Standard Deduction in the year of the loss.)
IRS PUB 525 page 25
If you used Rev. Proc. 2009-20 to claim the loss, you would have claimed either 75% or 95% of the loss. In this case only claim the recovery which is more than 25% or 5% (depending on whether you claimed 75% or 95% originally).
IRS Bulletin
If you do need to report income from the recovered loss, enter that under
- Personal Income
- Less Common Income
- Miscellaneous Income, 1099-A, 1099-C
- Start
- Scroll down to "Reimbursed deductions from a prior year"
- Start
- Select "Casualty or Theft Loss deducted as an itemized deduction in a previous year"
- Continue
- Enter the recovery (or portion of the recovery)
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