Can you provide an example of how the casualty loss, reimbursement and basis rules work and how the non-recognition rules apply under Internal Revenue Code Sections 121 and 1033?
Below are facts and consequences on how the casualty loss reimbursement and basis rules work. Example – Version 2 Facts: TP’s pre-Katrina basis in the property is $215,000. 2005: TP has a casualty loss of $22,000. TP receives insurance reimbursement of $7,000 and has no reasonable prospect of recovering any other amounts for damage to the home. 2006: TP repairs property at a cost of $25,000. TP receives LRA grant of $18,000 to reimburse the portion of the cost of repairs not covered by the insurance reimbursement.
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