What if you have a casualty gain?

You may be able to claim a deduction on your current or prior-year federal income tax return for casualty losses from sudden, unexpected, and unusual events, such as tornadoes, hurricanes, and certain straight-line winds.

But what if you have a casualty gain?

Odd as it sounds, when the reimbursement from your insurance company or other payor exceeds your adjusted basis in damaged property, you have an “involuntary conversion gain.” An involuntary conversion is treated as a sale and can result in taxable income. That’s true even when the property is your personal home, assuming the gain is more than your allowable exclusion.

Whether the gain is taxable depends on several factors. For example, you could choose to replace your damaged property with similar property. Making the election allows you to postpone all or part of the tax.

In general, you have two years to replace damaged property, and you may be able to request an extension for an additional year. If your location is declared a federal disaster area, you have up to four years to make the replacement.

Please call for more information about casualty gains and losses. We’ll help you get the most beneficial tax treatment.

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today’s small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it.

Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission.

Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations.

She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor and their dog, Davis.

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