TAX RESEARCH PAPER I EXAMPLE[2]

TAX RESEARCH PAPER I EXAMPLE[2] - TAX RESEARCH PAPER I...

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TAX RESEARCH PAPER I Problem 4-65
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PROBLEM 4-65 FACTS The Taylor family’s primary residence was damaged by fire. The damaged residence was under repair for three weeks making it necessary for the Taylors to obtain temporary lodging and to take their meals at a restaurant. The Taylor Family incurs expenses of $2,000 for lodging and $500 for meals which normally would have been done at their residence. The Taylor family estimates that during a five-week period they would normally spend $300 for meals. Their homeowner’s policy paid $2,500 to reimburse them for the cost. ISSUE When an individual receives insurance proceeds due to a casualty or loss, is the reimbursement taxable? TAX LAW AND ANALYSIS Section 61 of the tax code states that gross income includes all income, regardless of the source unless specifically excluded by law. Also, personal expenses incurred as a result of a casualty loss are not deductible. Hence, payment for accommodations (in this case, $2000 for motel) due to the destruction of an individual’s residence is not deductible as a casualty loss. It is noted, that in the case of Scott and Shari L. Lafvre, the insurance proceeds exceeded the loss. The Judge concluded that the Lafavres were not allowed a casualty deduction. 1[1]
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TAX RESEARCH PAPER I EXAMPLE[2] - TAX RESEARCH PAPER I...

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