I received an insurance claim check for my barn that went down in a tornado but I used the majority of it to pay part of my mortgage, do I have to claim that on my taxes?

[DavidS127]

It depends on whether the insurance reimbursement results in you having a gain or loss on the casualty (your barn).  Basically, if the insurance check was more than what you had invested in the barn (less any depreciation taken) you have a taxable gain.

See IRS Publication 547 at this link for this formula to determine is you have a gain or loss on your casualty:

"Amount of loss.

Figure the amount of your loss using the following steps.

1. Determine your adjusted basis in the property before the casualty or theft.

2. Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft.

3. From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive.

For personal-use property, apply the deduction limits, discussed later, to determine the amount of your deductible loss.

Gain from reimbursement.

If your reimbursement is more than your adjusted basis in the property, you have a gain. This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain.  See Figuring a Gain , later."

You are not required to spend the insurance reimbursement on the property with a loss.

[monicachevy]

I appreciate you trying to explain it to me but if it's no trouble is there any way you could explain using simple words? What happened was my barn went down in a tornado appraiser came out it was going to cost over $55,000 to have it rebuilt it was insured for less than that amount so they granted me the full amount that it was insured for but I had the barn excavated and buried for a total amount of $4,400 leaving over $20,000 left that I used to pay on my mortgage. Do I need to claim anything as income on my taxes?

[DianeC958 · Accepted solution]

Possibly.  If you used the barn as part of a business (like farming) there would be depreciation for the business use. 

Say the barn originally cost $50,000 and you used in as part of a business and over the years you took $10,000 in depreciation.  Now the barns value is $40,000 ($50,000-$10,000).

The barn gets destroyed and the insurance company gives you $25,000 for the barn.  Since the $25,000 is less than the $40,000 you do not need to claim anything as income on your taxes.

The same would be true if you did not use the barn is a business and it cost $50,000 originally and the insurance company gave you $25,000 for the barn there is no income to claim on your taxes.

The opposite is true is the barn cost $40,000 and the insurance gave you $50,000 then you would have a gain of $10,000 to claim as income on your return.