@Anonymous_ wrote:
@Opus 17 wrote:
And also (4), if you received an insurance payment, that reduces your cost basis. (The other expert says it increases the selling price, that will technically have the same effect on the gains calculation.)
How is the calculation going to be handled and reported in the following scenario?:
The land was sold for $150,000 (which @Caroleg22 mentioned in another thread) with a basis of $150,000 and the insurance payout on the destroyed house itself was, for example, $350,000? In other words, this was a limits claim and payout.
Report a basis of -$200,000?
Now that I think of your specific example, if the cost basis was $150,000 and the insurance payment was $350,000, the taxpayer would be required to report and pay tax on a $200,000 capital gain in the year of the insurance payment. (See publication 547, Gain from Reimbursement). Then, when selling the property in 2024, their basis is zero and they have a $150,000 capital gain. (Although they can increase their basis in the land by the cost of demolition and remediation.)
And I don't know how the exclusion would apply. It may be that the exclusion can be used for both transactions, as long as the land is sold within 2 years of the destruction of the house. But I would want an expert to review that.
So we really need to know what @Caroleg22 did in 2022.
