Casualty Gain Loss

[Florida_EA]

Client had an office machine that was fully depreciated (and used 100% for business) due to Section 179. It had a casualty event of a lightning that completely destroyed the machine. Insurance reimbursed 100%. And they replaced it with another machine machine of equal value. How should this be reported?

[DaveinTexas]

Hmmmm

Insurance reimbursed the cost of a new machine, is that what you are saying? Or did they reimburse the cost AND replace the machine? A double benefit?

Here’s an example: If insurance pays say, $10,000 for the new machine and the new machine costs $10,000, your client has what is called a deferred gain because the cost basis is what the cost basis was of the old machine ($0). So, if he sells the machine 2 years from now for $7,000, he will have a realized gain of $7,000.

If, in the same example the new machine purchase costs $9,000, the client will pay tax on the net gain of $1,000.
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