You may be able to claim a deduction on your current or prior-year federal income tax return for casualty losses from sudden, unexpected, and unusual events, such as tornadoes, hurricanes, and certain straight-line winds.
But what if you have a casualty gain?
Odd as it sounds, when the reimbursement from your insurance company or other payor exceeds your adjusted basis in damaged property, you have an "involuntary conversion gain." An involuntary conversion is treated as a sale and can result in taxable income. That's true even when the property is your personal home, assuming the gain is more than your allowable exclusion.
Whether the gain is taxable depends on several factors. For example, you could choose to replace your damaged property with similar property. Making the election allows you to postpone all or part of the tax.
In general, you have two years to replace damaged property, and you may be able to request an extension for an additional year. If your location is declared a federal disaster area, you have up to four years to make the replacement.
Contact your Beene Garter Professional at 616.235.5200 to learn more.