Home destroyed by fire..........

[newbie]

Original cost of home was 125,000. Insurance reimbursed 325,000 and land to be sold for $60,000. The proceeds will not be used to rebuild. Can the insurance proceeds and sale of land be combined and considered a sale of the home?

If so the home was owned and used as a primary residence for less than 2 years - could be prorated as unforseen circumstances?

Or am I way off base here?

[dsi]

Sound right to me.

[lbbwest]

If we are voting.

If the time elemants are all met, I vote yes to the exclusion also.

[Jesse]

If the time factor is not met I would think the fire would be an unforseen circumstance, but I don't know if you'd be able to treat the insurance reimbursement as a sale?

[sea-tax]

I will play devils advocate here, so don't jump all over me.

I say no 121 exclusion. An integral part of the exclusion is the "sale of a home". The home no longer exists it was burned down. Therefore the client is now selling a piece of land that at one time had his home on it.
I say capital gain .
Now I thought the taxpayer had like two years to find replacement property to defer the gain. I can't remember where I read that but I think I saw it in the TTB or some other publicaton.

[Jesse]

I did look this up in the TaxBook and in the example given under Homes in Disaster Areas it states if taxpayer reinvests less than the insurance proceeds in a replacement home, the excess insurance reimbursement is taxable to the extent gain exceeds any Section 121 exclusion on the sale of his main home.

Unless this is only for presidentially declared disaster areas my vote would be treat it as a sale.

[lbbwest]

"I say no 121 exclusion. An integral part of the exclusion is the "sale of a home".

Well that's nice, but Pub 523 Page 25 disagrees with you. It specifically states that if your home was destroyed or condemned it DOES qualify for exclusion up to the max for 125.

[sea-tax]

Well that's nice, but Pub 523 Page 25 disagrees with you. It specifically states that if your home was destroyed or condemned it DOES qualify for exclusion up to the max for 125.

Ibb simmer down, I stand corrected, well not corrected I stated that I was simply offering a counter opinion for the poster to think about. Often times we, myself included post a question here and don't hesitate to take the first response given. I just want to provide a different thought so that the poster examined all the sides.

[Joe Btfsplk]

Sec 121 and Involuntary conversion

The exclusion would apply. If it weren't a home the involuntary conversion rules (whatever they are) might apply.