Home Insurance Second Homes
What is the IRS capital gains impact of losing a second home to hurricane?
House was total loss. We received Insurance payment and it exceeds what we paid for the house. Can we rebuild or move elsewhere and not be required to pay capital gains?
If a homeowner suffers a complete loss of a principal residence and collects insurance proceeds in excess of the adjusted basis in the house, such excess is gross income. However, under Section 165(h)(2)(B) a net personal casualty gain for a given year is a capital gain. If the home was held over one year, the gain is a long-term capital gain. Furthermore, if the taxpayer’s long-term capital gains for the year exceed short-term losses, the excess is a “net capital gain” subject to a maximum tax rate of 28% under Section 1(h). The homeowner may, however, defer the gain by investing the insurance proceeds in another home or rebuilding.
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