@alyssaking92
The answer to this is very simple and has already been given. This thread is confusing because the original poster did not supply all the facts at once.
Let's consider a very simple case.
Suppose you buy a home for $500,000 and sell it for $800,000. You have a $500,000 basis and a $300,000 capital gain. You might be able to exclude part of the gain if this was your personal home, but the gain is there.
Now suppose the house burns down and the insurance company pays out $700,000. You have essentially "sold" the house to the insurance company for $700,000. Because the basis was $500,000, you have a $200,000 capital gain, and your basis in the land is reduced to zero. Now you sell the land (without rebuilding) for $100,000. Because your basis was reduced to zero by the insurance payout, the entire $100,000 is a taxable capital gain (although you might be able to exclude part of the the if it was your personal home.)
In both cases you had a $500,000 basis, you "sold" the house and land for a combined $800,000, so $300,000 is taxable capital gain.
If you rebuilt the house "as-was", your basis would remain the original $500,000 basis no matter how much the insurance company paid to rebuild, and that basis would follow you until whenever you decided the sell the house and land.
