"Herb Smith" <smithff33[at]aol.com> wrote:
- quote -

I agree.

Stu

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Nan, EA in LA wrote:

- quote -

I disagree with this latter statement in two ways. First,
the OP never said that the house was sold to the insurance
company, but to a private party. The insurance company
reimbursed the owner for the storm damage, but the sale was
voluntary. The OP kept the insurance reimbursement, which
results in a decrease in the house's cost basis.

Since the OP was already a half owner in the house, any
step-up in basis is limited to the part owned by her
ex-husband. She retains her original basis, reduced by the
insurance payment received. There definitely will be some
gain to report and pay (assuming the $150,000 sale price was
more than the adjusted cost basis).

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Petra wrote:

- quote -

You disposed of a capital asset that you owned. The asset
does not qualify as your main home. As such, you are
required to report the gain or loss on the disposition of
the long term capital asset on Form 1040 Schedule D.

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You must report. And you were the owner at the time of sale
so when it was put on the market doesn't matter.

Whether you must pay or not is another question.

I think this is an "involuntary conversion" in which you
"sell" the house to the insurance company. Because of the
death which gave you ownership, you probably have a step-up
basis for the home and no profit at all to be taxed.

Nan, EA in LA

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When my husband and I divorced in 1971, we did not divide
the home we owned jointly. He continued to live in the home
as sole occupant. He died in 2005 at which point I became
sole owner of the home. He had attempted a "for sale by
owner" before he became too ill to pursue the sale. The
home was put up for sale by owner again one month prior to
his death while he was hospitaized as it was clear he could
not continue to live there even if he recovered from the
illness. The house remained on the market after his death
but did not sell. During Katrina a tree fell on the house
and we received an offer through a real estate agent to
purchase "as is". I sold the house for much less than it was
worth but retained the insurance proceeds for the damages.
These proceeds were less than adequate to begin with and as
I was not the one to complete repairs, the insurance company
took depreciation although I had homeowners "replacement
cost" coverage.

The question is: Although I owned the house for many years
but do not qualify for the 2 year occupancy rule, must I
report this sale to the IRS. Total sale was less than
$150,000.00. Does the fact that the occupying owner was
living when the house was put on the market make a
difference?

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