@rcorona106 wrote:
Thanks for the reply.
100% of the insurance proceeds covered the cost of the reconstruction. There were some improvements made to the house since it was bought in 1992 and before it burned down but no documentation supporting them is available.
Might be easiest to just take the 1992 purchase price and divide by 4 to get the tax basis?
You need to figure the gain two ways.
1. Use the basis equal to the price in 1992 plus the cost of improvements and post-fire restoration that you can prove, minus any casualty loss tax deduction your father took on his 2019 tax return. (This deduction would have only been allowed if the loss was due to a federally declared disaster like a wildfire or severe storm. You do not have to reduce the basis by the fire damage if your father did not take a tax deduction for the loss.) If you sold the home for more than this adjusted basis, you have a gain. Stop here, and figure your taxable capital gains. If you have a loss when using this method, recalculate your situation in step 2.
2. Use as your basis the fair market value of the property immediately after the fire, plus the cost of restoration. (The fair market value after the fire was likely the value of the land minus the cost of cleanup.). If you still have a loss, then the loss may be deductible. If you have a gain using method 2 and a loss using method 1, then you have neither a gain nor a loss.
https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/prope...
Losses on personal property are not deductible, but losses on investment property are deductible. Siblings who lived in the house, or used it as a vacation home or second home, treat it as personal property. If a sibling did not use the home for personal reasons and only retained ownership to make money when it was sold, then they can consider it investment property and deduct a loss.
