AboutIvan Roth Expertise Federal and State Income taxes I do tax returns for partnerships and C corporations I am well versed with State Franchise taxes for CA, CT, FL,NY,TN,TX.
Experience Eight years as tax manger for a real estate company
Question My company recently bought property located next to a body of water. We later discovered that the property does not have riparian rights (right to reasonable use of water). Use of the water is essential to the business. Luckily, we acquired title insurance during the purchase and expect that their title insurance claim will be paid. The proceeds will not exceed the purchase price and will likely be the difference between the insured value and the reduced value caused by the title error. ARE THE INSURANCE PROCEEDS SUBJECT TO TAX?
Thanks for your attention!
Answer Hi Patrick it seems that the company had a reimbursed casualty loss and as such there would not be anything left to tax but of course it should be reported I have attached the appropriate topic from www.irsustreas.gov
Topic 507 - Casualty and Theft Losses
Generally you may deduct losses to your home, household items and vehicles on your Federal income tax return. You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement and you must reduce the loss by the amount of the reimbursement.
A casualty does not include normal wear and tear or progressive deterioration from age or termite damage. The damage must be caused by a sudden, unexpected, or unusual event (e.g., car accident, fire, earthquake, flood, vandalism). For the definition of "sudden, unexpected, or unusual" and for more information on the types of losses that are generally deductible as casualty losses, see Publication 547, Casualties, Disasters, and Thefts.
A theft is the taking and removing of property or money with the intent to deprive the owner of it. Lost or mislaid property is not considered a theft.
If your property is not completely destroyed, or if it is personal-use property, the amount of your casualty or theft loss is the lesser of the adjusted basis of your property, or the decrease in fair market value of your property as a result of the casualty or theft, reduced by any insurance or other reimbursement you receive or expect to receive.
If business or income–producing property, such as rental property, is completely destroyed, the amount of your loss is your adjusted basis in the property minus any salvage value, and minus any insurance or other reimbursement you receive or expect to receive.
For more information about how to calculate your loss deduction, refer to Topic 515.
If you believe that your loss qualifies as a casualty or theft loss, refer to Publication 547, Casualties, Disasters, and Thefts. For losses involving personal-use property, refer to Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property). For losses involving business-use property, refer to Publication 584B (PDF), Business Casualty, Disaster and Theft Loss Workbook.
To claim a casualty or theft loss, you must complete Form 4684 (PDF), Casualties and Thefts, and attach it to your return. Generally, you may claim casualty or theft loss of personal use property only if you itemize deductions on Form 1040, Schedule A (PDF). However, if you have a casualty loss from a disaster that occurred in an area declared by the President to be a federal disaster area, refer to Topic 515.
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Page Last Reviewed or Updated: March 25, 2009
