Sale of Home in LA Fires

[chapguy19]

Client's home was valued at $1.1million when it burned down.  

Bought home 17 years ago for $450K.

She sold the lot for $500k and received $600K from the insurance company.

Property was in a designated Disaster Area.

She purchased a new home 6 months later (within the 4 year limitation) for $1m.

Do I need two disposition entries for the insurance payout and the sale of the lot?

What is the basis of her new home?

[BobKamman]

So she has a $650K gain from an involuntary conversion, $550K of which was rolled over to her new home.  But where do you plug in the $250K exclusion (assuming this was her principal residence)?  Off the top of my head, I think I need another cup of coffee, and I would file an extension so I could give it more thought after April 15.  

But it's probably an easy question for an Intuit Employee Tax Expert, so stay tuned.  

[chapguy19]

Your answer is pointing me in the same direction.

I certainly don't think she gets to have $600k, capital gains free.

Thanks for your response.  I'll be waiting until the coffee to kick in before I hear from you again.

Christopher

[BobKamman]

She doesn't have to pay tax on $500K capital gains.  But how much of it is excluded, and how much is deferred?  And why not give her Section 121 on the last $100K?

[BobKamman]

In the good old days, we could change typos in the subject line so that firs would not eternally be read as fire(s).   Maybe if I called Intuit support and spent a few hours on the phone, they could tell me that it's not possible to make that change.  

Anyway, AI Slop says:  "When a home is involuntarily converted (e.g., destroyed by natural disaster), Section 121 applies to the gain first, and any remaining gain may be deferred under Section 1033."  I wouldn't trust that as far as I could groom a horse, but it might lead to some reliable references.