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TAX RESEARCH PROJECT EXAMPLE - 1st Tax Research Project...

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1 st Tax Research Project Reimbursed Living Expenses from Insurance Policy for casualty damage to primary residence – Tax Ramifications
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Introduction The intent of this research project is to unravel the tax implications associated with benefits derived from homeowners’ policies (in this case insurance policy) against the background of an unexpected event or occurrence. Relying solely on the background of the problem, the IRS has specifically made provisions for such disasters under what it termed – Sudden, Unexpected or Unusual Events. Definition – an unusual event in this context could be described as a situation that departs from day-to-day occurrences which typically are not part and parcel of everyday routine. Under the IRS code, situations of this nature qualify for some tax deductibility (tax excludability) for the loss. The amount that qualifies for deductibility or excludability varies and largely depends on the estimated amount of loss sustained or involved and the reasonableness of substituting accommodations. Facts The Taylor’s primary residence was damaged by fire and they had to reside in a motel for a period of three weeks while their home was being restored. The Taylor's incurred the following living expenses during their three weeks away from home: $2,000 for lodging and $500 for meals. Consequently, the insurance company reimbursed the Taylor’s $2,500 for actual expenses incurred.
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TAX RESEARCH PROJECT EXAMPLE - 1st Tax Research Project...

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