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Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

 
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11 Replies

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

It’s very easy if you have replacement cost insurance. If you were paid more to replace your belongings than they originally cost, the difference is a capital gain. Likewise, if you are paid more to rebuild your house than you originally paid to buy it, that difference is also a capital gain.

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

can i just forget about using the casualty on my return.   I did not buy another house so do i have to claim the gain.  if so how do i handle that.

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

Are you preparing your 2016 return?  If not, I don't understand why this is coming up now.

 

Any payment in excess of cost basis is taxable capital gains.  If you didn't fill out the casualty loss section, the income is still considered a taxable gain that would have to be reported on schedule D.

 

For personal property, your basis is what you originally paid.  There's no adjustments, but the more you can do to accurately prove a higher cost for your personal items, the smaller the gain.

 

For your home, there are two provisions that will help you.

 

First, if you were using the home as your main home for at least 2 of the past 5 years, you can exclude the first $250,000 of gain if you are single, or $500,000 of gain if you are married filing jointly, the same as if you sold the house.  (There are some limitations and adjustments if you used part of the house for business or a rental in the past.)  Gain over the exclusion amount is taxable.

 

Second, you can reduce your gain by carefully documenting your adjusted cost basis. Your adjusted cost basis is the original purchase price, plus certain closing costs, plus the cost of any permanent improvements you made to the home, such as a new roof, addition, remodeling and so on. Basis adjustments are described on page 8 here.  https://www.irs.gov/pub/irs-pdf/p523.pdf

 

If the program asks for the purchase price of the home, enter the adjusted basis instead.  That may reduce your taxable gain. 

 

If you were not claiming a casualty loss, you would report this under "Sale of my home" and use the insurance proceeds as the selling price, and the date of the fire as the date of sale.  The program will give you the 250/500 exclusion if you qualify.

 

I'm not sure how the casualty loss section will interact with the home sale interview.  Someone else might have additional advice.  Or you could seek a professional to review your situation. 

 

@dmertz @macuser_22 

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

yes i am preparing my 2016.  with the loss due to fire and wife being pregnant job school just getting it finished.

ColeenD3
Expert Alumni

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

See the answer by Opus 17. He has covered all the bases.

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

I am still having issues with this 2016 casualty of my house burning down.  i rebuilt the home.  turbotax has me completing a form irs section 1033 and it shows realized gain but still showing a gain on my 1040.  can you please help.

LindaB1993
Expert Alumni

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

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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Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

i have input the amounts on the casualty form 4684 and insurance reimbursed higher which caused a gain.  when my house was replaced (we rebuilt) in the same year 2016.  i then had the 1031 to complete that was to defer the gain but it still shows on the 1040.  so this is where i am so confused.   I really have worked completing returns for years but this has me stumped.  am i overthinking. 

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

it is the 1031 not 1033.

LindaB1993
Expert Alumni

Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

Yes, you can do it in  Forms Mode in TurboTax Desktop  Go to Forms, and click on Open Form, and type in election to defer,.   Choose the Election to Defer Gain Invol Conversion form and click on Open Form.   

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Casualty loss 2016 due to a fire. how can i have a gain when i had to rebuild and replace all my personal items.

that form is 1033 and is already part of the return.  why does it not take the capital gain off of my 1040?  help is always appreciated.

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