Yet another Casualty Gain (Loss)

[Edsel]

I shoulda waited to post this, or simply tacked it onto the other thread (which has somewhat degenerated).

I had the appointment and now have another perspective on just how complicated this has become:

Facts:  Couple's AGI is $95,000.  Some 10-12 years ago, they did pay $120,000 for the home.  FMV of the home just before the accident was $250,000 (not at all unusual in Nashville area).  Insurance proceeds were $170,000.  Same scenario as the example below. 

However, to spice up the problem, taxpayer lost contents, replacement value $50,000.   Original cost was $35,000.  Since the furniture was not new, FMV had to be less than cost.  FMV was $25,000.  Insurance company replaced 80% of the "depreciated" value, or $20,000.

NOW, what is the casualty loss/gain, and how is the loss/gain to be reported and taken?

Our first thought is to calculate the real estate and the contents as two separate calculations.  However, remember that it is ONE casualty event, and not TWO.  If we are to report two events, the 10% throwout will have to be applied twice.

If this is only one transaction, the aggregate numbers are:

Cost:  $155,000.  FMV immediately before the casualty was $275,000.  Insurance reimbursement was $190,000.  According to this the "gain" is $35,000.  Is this even correct?  and if so, does the gain qualify for sec. 121 exclusion?

Judy, you're good and are invited to the "reply" party along with anyone else who cares to offer an answer.

 

 

 

[jklcpa]

Here are some rules taken from pub 547

Even though this was the result of one event, each of the components is figured separately, and it looks like a loss on the contents.

If one event results in multiple items destroyed or stolen, the $100 rule is subtracted only once.  If there are multiple unrelated casualties during the year, the $100 rule is applied to each event.

If the event results in items of gain and loss,  there's this tidbit regarding the 10% rule - 

 

Quote

Gains and losses.

If you have casualty or theft gains as well as losses to personal-use property, you must compare your total gains to your total losses. Do this after you have reduced each loss by any reimbursements and by $100 but before you have reduced the losses by 10% of your adjusted gross income.

Casualty or theft gains don't include gains you choose to postpone. See Postponement of Gain, later.

Losses more than gains.

If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. The rest, if any, is your deductible loss from personal-use property.

Example.

Your theft loss after reducing it by reimbursements and by $100 is $2,700. Your casualty gain is $700. Your loss is more than your gain, so you must reduce your $2,000 net loss ($2,700 − $700) by 10% of your adjusted gross income.

Gains more than losses.

If your recognized gains are more than your losses, subtract your losses from your gains. The difference is treated as a capital gain and must be reported on Schedule D (Form 1040). The 10% rule doesn't apply to your gains.

 

In your case, I think you will still either be deferring the gain on the residence or excluding it under sec 121.  You should research this further unless someone else can answer, but it seems to me that a gain excluded under 121 would be treated the same as one that is postponed. In other words, you would ignore the casualty gain on the residence in applying the 10% rule so that it applies only to the loss on the contents.

I'd suggest that you look at pub 547 here.  Its contents are indexed and clickable that will take you to the exact spots that apply.  Look for these sections:

• figuring the loss
• gain from reimbursement
• separate computations
• then further down in the contents - look at the sections for the "$100 rule" and the "10% rule"

[Edsel]

Thank you Judy.  Your knowledge and willingness to take the time to share is commendable.

[jklcpa]

No problem, glad I could steer you in the proper direction.