I recommend reviewing the Form 4684. This will account for the total loss and insurance reimbursement..
In order to fill out Form 4684 , there are several numbers that you'll need to know.
- First, line 2 asks you for the "cost or other basis" of the property. Basis means the amount of money that you have invested in the damaged property. In most cases, this will be the amount you originally paid for it; however, if you spent money on improving the property later, your basis might be higher.
- Next, you'll need to fill in the amount of the reimbursement you received from your insurance coverage. If your reimbursement was greater than your basis in the property, then as far as the IRS is concerned, you had a gain rather than a loss.
- If you do end up with a gain, you may have to pay taxes on that gain as though it was income that you'd earned that year. One way to avoid such a fate is to use the insurance reimbursement to either restore the damaged property.
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