Discussion:Business casualty loss
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Discussion Forum Index --> Tax Questions --> Business casualty loss
| 24 March 2006 | |
| I have a client that had a complete loss of his business from a fire. There was insurance and it paid the client. Most of the assets of the business were fully depreciated. Does the client have a gain on the insurance proceeds? | |
| 24 March 2006 | |
| I'm no expert, but there is a gain (Proceeds - adjusted basis) from the conversion. I believe there are rules for postponing the gain, replacing the property and the like. | |
| 24 March 2006 | |
| Gain is generally not recognized on involuntary conversions...but, yes, there are replacement requirements...2 years, etc. | |
| 4 June 2007 | |
| My client business was burglarized in 2007, took all computers and and a server. Insurance company reimbursed the client the amount of computer replacement cost AND cost of labor to create the data that was lost.
Question: Is the insurance proceed to reimburse cost of labor ordinary income? | |
| 4 June 2007 | |
| I vote yes. Any proceeds that exceed the actual cost of the labor should be recognized as ordinary income. My reasoning is that labor costs are ordinary expense. | |
| 24 November 2008 | |
| I've looked but cannot find the answer to this - when does the election need to be made and the two years start? There was a fire in December 2007 and insurance money was received in 2008. If there is no intent to replace the building, does the gain need to be reported in 2007 or deferred until 2008? | |
Taxguy1024 (talk|edits) said: | 24 November 2008 |
| The replacement period ends two years after the close of the first tax year in which any gain is realized. The general rule is that you report the gain in the year in which you receive the reimbursement. | |
| 24 November 2008 | |
| Waynecpa -
Take a look at Central Tablet Mfg. Co., 76-1 USTC. This case stands for the proposition that insurance recoveries are Gain, in the form of the excess of fire insurance proceeds over the adjusted basis in the insured property, accrued to a corporation in the year in which the insurance claim was settled, rather than, as the IRS contended, in the year of the involuntary conversion. As far as making an election, it does not matter. An amended return will need to be filed if you elect and then do not replace the property within the applicable time period. | |
CarlLaFong (talk|edits) said: | 24 November 2008 |
| Wayne, the replacement deadline is 2 years after the close of the first taxable year in which any part of the gain upon the conversion is realized. Thus, since gain was first realized in 2008, the year after the conversion, the replacement deadline is December 31, 2010. | |
