Tax question:
I had an insurance pay out for total loss at 119,538 when a large tree fell on the house. Property was not repaired other than to remove the fallen tree and cover up the roof. It was then sold for 3000. The original basis of property is 68,464.
In order to calculate the gain or loss, am I supposed to deduct the insurance payout from the original basis? Do I add or deduct the 3000 sales price?
The reason I am confused is b/c of the tax software instructions. It states to subtract insurance reimbursements from the original basis. that would give me a negative balance, so that means a loss? The insurance reimbursement paid off the mortgage on rental property and mortgage on house I am living in, so it seems as if that would be a gain. The wording has me confused. Below are the tax software instructions:
Add to this original basis:
The cost of any improvements having a useful life of more than one year (e.g. paving a driveway, installing a new roof, installing HVAC, etc.)
Impact fees
Legal fees related to clearing or defending title
Cost of extending power, sewer, or other utilities to the property
Assessments for sidewalks and roads
Now subtract:
Section 179 or Section 280F Deductions
Deduction for clean fuel vehicles and refueling property
Deductions allowed or allowable for depreciation, amortization, or depletion
Casualty and theft losses and insurance reimbursements
Easements
Certain energy tax credits