Discussion:Insurance proceeds

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Discussion Forum Index --> Tax Questions --> Insurance proceeds

Lap (talk|edits) said:

9 January 2007
do the proceeds from an insurance claim add to the basis of comm rental property when the claim ammount exceeds the replacement cost?

EKelley737 (talk|edits) said:

17 February 2007
This may be too late to help, but I was researching rental casualty losses and came across your question. According to my tax manual ..."If the reimbursement exceeds the casualty amount (recovery is more than tax basis), the profit is currently taxable." An exception is allowed if the excess reimbursement is reinvested in similar property.

JR1 (talk|edits) said:

February 17, 2007
I thought I recalled that gains from involuntary conversions were never taxable...but I also recall that there is a 2 year replacement period requirement, so both cannot be true, can they?

Corptaxhelp (talk|edits) said:

February 19, 2007
You have two full years of deferment after the tax year in which the involuntary conversion occurs to reinvest or pay The Man<tm>.

I just love 1033 exchanges... all the benefits of a 1031 but with at least two years to find a replacement instead of the burdensome 45 days that a 1031 grants.

Ourtuition (talk|edits) said:

11 June 2009
I have a client whose commercial building burnt down and insurance will payout approx. $1.5 for the building. The insurance company has paid the funds directly to the mortgage holder. The mortgage holder is distributing the funds when they are presented an invoice(s) from the contractor. The building(shell) is completed, there is now approx. $500K left with the lender. The owner is waiting to get tenants until he will do the TI's. In the meantime the $500K is earning interest reportable to the owner(client).

Now for the ?: If the owner does not have control of the funds is he still obligated to use the funds within 2 years of the fire?



Riley2 (talk|edits) said:

11 June 2009
The 2-year replacement period is measured from the date that the taxpayer's insurance recoveries exceed his basis in the property. Deposits with the mortgage company are treated as received directly by the taxpayer.

Ourtuition (talk|edits) said:

11 June 2009
thanks as always Riley

can you give me the section/rule


Tax Lady (talk|edits) said:

5 March 2011
My client turned his homestead into a rental property in 2009. The house burned to the ground in 2010. The insurance company did not change his type of insurance from homestead to rental (even though he called them and told them it was a rental). Because the agent did not change the property type, the insurance company sent him a letter of denial for payment.

He stated though, that the insurance company will probably pay off the mortgage, in the amount of 231,000. I am to understand that he will pay taxes on 54,000.00= 231,000 - 177,000.

Is this correct?

He does not plan on replacing it in the two year time frame due to lack of money.

The dishwasher started the fire. He said he may get proceeds from the manufacturer of the dishwasher. Will this money be taxable?

Kevinh5 (talk|edits) said:

5 March 2011
We have no clue what the 177,000 number represents.

Tax Lady (talk|edits) said:

5 March 2011

Kevinh5 (talk|edits) said:

5 March 2011
About 15 years ago, one of my rental houses burned. The insurance company made the proceeds check payable to me AND the mortgage company. The mortgage company endorsed it over to the repair folks once the home was completed.

If he has 'replacement cost' surely he can re-build.

The difference between a LANDLORD policy and a HOMEOWNER policy was that my landlord policy kept paying me rent each and every month, so I didn't care how long it took to repair. (I think it took 6 months to repair, when it only took 3 months to build that house.)

Tax Lady (talk|edits) said:

5 March 2011
The problem is, that the insurance company sent him a letter of denial and will not pay him the replacement cost (that he should be paid) because the insurance agent messed up.

Sorry for your loss. So hopefully he will get the check in his name and mortgage company and rebuild. I will mention it to him.

thanks Kevinh5......Cindy :)

Kevinh5 (talk|edits) said:

5 March 2011
I was fortunate to have had replacement coverage. The house was only 2/3s destoyed, but they didn't 'total' it like they do a car. The 2/3's repair cost as much as I had paid for the entire house just a few years earlier. I'm a big believer in insurance.

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