This will end up applying to tax year 2022 since it happened this year, but I was playing with my 2021 tax return to see what would have happened if the loss happened in 2021. I am married, file jointly, and it was our primary residence. The house is a total loss and not part of any disaster. We purchased it 10 years ago and prior to the loss, the home was worth ~300k more than we paid for it.
If we had sold the property prior to the loss, we would have paid no capital gains taxes. I inputted into TurboTax our cost basis and what I expect our insurance payout to be (still dealing with that). It then shows us owing a ton in taxes. The payout, which is basically the value of the home, isn't even enough to rebuild an equivalent house on our property, as we made the mistake of not upping our coverage after costs skyrocketed in the last two years. Yet I'm forced to pay the government on a gain when the reality is I will be out of pocket just to rebuild the home I had?
Or do I have to claim this "deduction" at all?
