Explanation The loss of occupancy or use of a principal residence due to damage caused by storm, fire, or other casualty results in the receipt of the amount from insurance that are paid for living expenses of an individual. This amount received from insurance is excluded under the Section. 123 (a). As per Section 123 (a) General rule, when the principal residence of an individual is destroyed or damaged by storm, fire, or other casualty or an access is denied by governmental authorities to his principal residence due to threat of occurrence or occurrence of such a casualty, then under an insurance contract which are paid to reimburse or compensate such individual for living expenses incurred for his family and himself resulting from the loss of occupancy or use of such residence, such amount received by the individual is not included in the gross income. Under the Section 123 (b), up to the excess of actual living expenses over the normal living expenses, the limit is excluded, although Person DL and Person DB qualify for this exclusion. Sec. 123 (b) Limitation – For the receipt of the amounts by the taxpayer for living expenses that are incurred during any period, Subsection (a) shall apply only to the extent of the amounts that are received do not exceed the amount by which – 123 (b) (1) the loss of occupancy or use of their residence results in the actual living expenses incurred for him and his family during such period, exceed 123 (b) (2) during such period, the normal living expenses that would have been incurred for him and his family. Reg. Sec. 1.123-1 (a) (2) is expanded on Sec.123 (b). This states that up to the reimbursement of necessary and reasonable expenses that maintain their normal standard of living during the loss period, the exclusion is limited. (2) For maintaining the customary standard of living by the insured and his family members during the loss period, the amount of expenses incurred by them for the necessary and reasonable increase in living expenses are received as compensation or reimbursement. Such amounts are excluded under this section. As per Reg. Sec.1.123-1 (b) (1), in general, the excludable is for excess expenses actually incurred due to the casualty for utilities, food, transportation, and miscellaneous services. Generally, the excludable amount represents such excess expenses actually incurred due to a threat or casualty thereof, utilities, food, for extraordinary expenses for transportation, for renting suitable housing, and miscellaneous services during the period of denial of access by governmental authority or replacement or repair of the damaged principal residence. As per Reg. Sec.1.123-1 (b) (2), only the increase in the expense is considered to be an actual living expense, for expenses that are normally incurred. An increase in the amount expended for items of living expenses such as transportation and food is resulted due to the loss of occupancy or use of the principal residence. To this extent, only the increase in such costs shall be considered as actual living to be counted at the decreased amount. (3) Normal living expenses not incurred – The expenses comprising actual living expenses that would have been incurred but are not incurred as a result of the theft or casualty thereof, are the same expenses of the normal living expenses...

Concepts in Federal Taxation 2019 (with Intuit ProConnect Tax Online 2017 and RIA Checkpoint 1 term (6 months) Printed Access Card)

26th Edition

ISBN: 9781337702621

Author: Kevin E. Murphy, Mark Higgins

Publisher: Cengage Learning

See similar textbooks

Concept explainers

Property Insurance

Property insurance protects property from unforeseeable loss or damage and covers property owners' liability. Property insurance provides financial compensation to the property owner or renter in the event of damage or theft, as well as to someone other …

Question

Chapter 4, Problem 77TA

To determine

Ascertain the income tax treatment of the receipt of the $2,150 from the insurance company.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 4, Problem 76IIP

Chapter 4, Problem 80TA

Students have asked these similar questions

Jorge and his wife own a beachfront vacation home in Savannah, Georgia. During the year, high winds from a tropical storm shatter a sliding glass door and rain from the storm causes extensive water damage to the kitchen. The Savannah area qualified for federal disaster relief. Fortunately, during a calm in the storm, Jorge is able to board up the door, which limits the water damage to the kitchen. The items damaged in the storm are: Cost ValueBefore ValueAfter InsuranceProceeds Kitchen furniture $2,085 $1,325 $430 $510 TV 265 200 0 115 Refrigerator 1,000 920 90 775 Linoleum flooring 1,645 880 0 470 In addition, Jorge pays $610 to replace the sliding glass door. The insurance company will not reimburse him for the cost of the new door because the old sliding glass door did not meet the company's standards for a hurricane area. The amount of Jorge's casualty loss before considering any annual limitations that may apply is…

Paul's car sild off the icy road, causing $2.000 in damage to his car. He was also treated for minor injuries, costing $1,400. His car insurance has a $500 deductible, after which the full loss is paid His health insurance has a $250 deductible and covers 80% of medical cost. What were Paul's out-of-pocket costs from the incident? Paul's out-of-pocket costs are $(630). (Round your response to the nearest penny)

Amanda is a self-employed newspaper columnist who does her work exclusively from a home office. Amanda had a bad year and her taxable income from her business is only $2,000 before the home office expenses this year. Her office takes up 300 square feet of her 1,200 square feet apartment. The total expenses for her apartment are $8,000 for rent, $1,000 for utilities, $200 of renter’s insurance, and $800 for pest control and other maintenance. What is Amanda’s home office deduction? Please show your calculations.

Chapter 4 Solutions

Concepts in Federal Taxation 2019 (with Intuit ProConnect Tax Online 2017 and RIA Checkpoint 1 term (6 months) Printed Access Card)

Ch. 4 - Prob. 1DQ Ch. 4 - Prob. 2DQ Ch. 4 - Prob. 3DQ Ch. 4 - Prob. 4DQ Ch. 4 - Prob. 5DQ Ch. 4 - Prob. 6DQ Ch. 4 - Prob. 7DQ Ch. 4 - Prob. 8DQ Ch. 4 - Prob. 9DQ Ch. 4 - Prob. 10DQ

Ch. 4 - Prob. 11DQ Ch. 4 - Prob. 12DQ Ch. 4 - Prob. 13DQ Ch. 4 - Prob. 14DQ Ch. 4 - Prob. 15DQ Ch. 4 - Prob. 16DQ Ch. 4 - Prob. 17DQ Ch. 4 - Prob. 18DQ Ch. 4 - Prob. 19DQ Ch. 4 - Prob. 20P Ch. 4 - Prob. 21P Ch. 4 - Prob. 22P Ch. 4 - Prob. 23P Ch. 4 - LO2 Herman inherits stock with a fair market value...Ch. 4 - LO2 Fatima inherits a rental property with a fair...Ch. 4 - Prob. 26P Ch. 4 - Prob. 27P Ch. 4 - Prob. 28P Ch. 4 - Prob. 29P Ch. 4 - Prob. 30P Ch. 4 - Prob. 31P Ch. 4 - Prob. 32P Ch. 4 - Prob. 33P Ch. 4 - Prob. 34P Ch. 4 - Prob. 35P Ch. 4 - Prob. 36P Ch. 4 - Prob. 37P Ch. 4 - Prob. 38P Ch. 4 - Prob. 39P Ch. 4 - Prob. 40P Ch. 4 - Prob. 41P Ch. 4 - Prob. 42P Ch. 4 - Prob. 43P Ch. 4 - Prob. 44P Ch. 4 - Prob. 45P Ch. 4 - Prob. 46P Ch. 4 - Prob. 47P Ch. 4 - Prob. 48P Ch. 4 - Prob. 49P Ch. 4 - Prob. 50P Ch. 4 - Prob. 51P Ch. 4 - Prob. 52P Ch. 4 - Prob. 53P Ch. 4 - Prob. 54P Ch. 4 - Prob. 55P Ch. 4 - Prob. 56P Ch. 4 - Prob. 57P Ch. 4 - Prob. 58P Ch. 4 - Prob. 59P Ch. 4 - Prob. 60P Ch. 4 - Prob. 61P Ch. 4 - Prob. 62P Ch. 4 - Prob. 63P Ch. 4 - Prob. 64P Ch. 4 - Prob. 65IIP Ch. 4 - Prob. 66IIP Ch. 4 - Prob. 67IIP Ch. 4 - In each of the following problems, identify the...Ch. 4 - In each of the following problems, identify the...Ch. 4 - In each of the following problems, identify the...Ch. 4 - Prob. 71IIP Ch. 4 - Prob. 72IIP Ch. 4 - Prob. 73IIP Ch. 4 - Prob. 74IIP Ch. 4 - Prob. 75IIP Ch. 4 - Prob. 76IIP Ch. 4 - Prob. 77TA Ch. 4 - Prob. 80TA Ch. 4 - Reggie receives a 2-year scholarship to Big...Ch. 4 - Prob. 83IP Ch. 4 - Calculate Carmins adjusted gross income on her...Ch. 4 - Prob. 85DC Ch. 4 - Marlo and Merlins son, Alex, needs 20,000 to start...Ch. 4 - Prob. 87TPC Ch. 4 - Prob. 88TPC Ch. 4 - Prob. 89EDC

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Ascertain the income tax treatment of the receipt of the $2,150 from the insurance company.

Solution Summary: The author explains the income tax treatment of the receipt of 2,150 from the insurance company.

Concept explainers

Ascertain the income tax treatment of the receipt of the $2,150 from the insurance company.

Want to see the full answer?

Chapter 4 Solutions