CLAIMS: TAX TREATMENT OF A PAYOUT

Is a homeowners insurance claim payout taxable? Cost basis, gain, and the replacement clock after a house fire

A homeowners insurance payout is taxable only when it is more than your adjusted basis in the destroyed property, and the owner of a main home can then exclude up to $250,000 of that gain, or $500,000 on a joint return. What is left can be postponed by replacing the home before a deadline that falls two years after the end of the tax year the gain arises, or four years after in a federally declared disaster.

Disclaimer: Published averages and benchmark ranges, not a quote. This page is general information about federal tax rules, not tax advice or insurance advice; confirm your own facts with a tax professional. Your premium will differ based on your home, location, claims history, and insurer. Flood insurance is separate from a standard homeowners policy.

Picture a house that cost its owner $38,000 in total over thirty-seven years, and a fire that ends in a $300,000 dwelling payout. Before any claim costs, the owner has realized $262,000 of gain on paper. A single filer who owned and lived in the house for the required two years excludes $250,000 of it, which leaves $12,000 that the replacement election can still defer. Change one input, the owner's cost, to $210,000, and the same check produces a $90,000 gain and no tax at all. The tax result follows from cost basis, not from the size of the check, so neither "insurance money is never taxable" nor "insurance money over your loss is always taxable" is a safe rule.

A payout is a sale price: the gain test and the order of three rules

The IRS treats a destroyed house the way it treats a sold one. Publication 547, Casualties, Disasters, and Thefts, says that if you receive an insurance payment "that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft." The gain is the amount you receive, minus your adjusted basis at the time of the casualty. Publication 547 adds that you use adjusted basis "even if the decrease in FMV of your property is smaller than the adjusted basis," so the market value of the house before and after the fire does not set the gain.

The amount you receive is defined broadly. Publication 547 says it includes money, plus the value of any property received, minus expenses you incur in obtaining reimbursement, and that it "also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property." Its example is a $145,000 award on a destroyed home, of which $140,000 arrived in cash and $5,000 went straight to the mortgage holder; all $145,000 is the amount received. A public adjuster's fee or an appraisal cost paid to obtain the payment comes off that figure, which is why the fee in the worked example below reduces the gain.

Three rules then apply, and their order matters, because each one shrinks the number the next one sees.

First, the gain is computed: amount received less claim costs, less adjusted basis. Second, if the destroyed property was your main home, IRC section 121(d)(5)(A) says "the destruction, theft, seizure, requisition, or condemnation of property shall be treated as the sale of such property," so the home-sale exclusion applies to the gain: $250,000, or $500,000 for qualifying joint filers under section 121(b). Third, whatever gain survives the exclusion can be postponed under IRC section 1033 by buying property "similar or related in service or use" within the replacement period. Section 121(d)(5)(B) ties the second and third steps together: for purposes of section 1033, the amount realized is treated as the amount determined without regard to section 121, "reduced by the amount of gain not included in gross income" under section 121. Treasury Regulation 1.121-4(d)(2) repeats the rule, and its example is the one to know. A fire destroys a house with an $80,000 basis, the insurer pays $400,000, and the owner buys a new house for $100,000. The owner excludes $250,000, treats the amount realized as $150,000, has a $70,000 gain left, and recognizes only $50,000 of it, the amount by which $150,000 exceeds the $100,000 cost of the new house. The other $20,000 is deferred.

The exclusion carries the usual conditions from Publication 523, Selling Your Home: ownership and use as a main home for at least 24 months of the five years ending on the date of the sale, and no other home sold with an exclusion in the previous two years. Publication 523 lists a destroyed home among the unforeseeable events that qualify an owner for a reduced exclusion who falls short of the two-year tests; the reduced limit is the shorter of the months of use, ownership or time since a prior exclusion, divided by 24, times $250,000. A household that had lived in the house 14 months when it burned would have 14 divided by 24, or 58.3 percent, of $250,000, which is $145,833. The $250,000 and $500,000 limits are written into the statute and are not indexed for inflation, so they do not carry a tax year.

Adjusted basis: the number that decides everything

Basis is the measure of your investment in the property. For a purchased home it starts at cost, and Publication 523's Worksheet 2 builds it from specific parts: what you paid, including the down payment and any amount borrowed; settlement fees and closing costs you paid at purchase, other than financing costs; real estate taxes you paid on the seller's behalf; and the cost of construction or improvements still part of the home. Repairs and maintenance, such as painting or fixing leaks, are not basis. Improvements that have since been replaced, such as carpeting you installed and later tore out, are not basis either.

The same worksheet lists what comes off. Depreciation taken or allowed for business or rental use of the home, casualty losses you claimed as a deduction, and "any insurance payments you received or expected to receive for casualty losses" all reduce basis, as do energy credits and subsidies tied to improvements you had added to basis, which Publication 523 lists by year, including utility subsidies from 1992 and the residential clean energy credit for 2006 to 2025. A solar system bought with a credit therefore enters basis net of the credit.

One interaction catches owners who made an earlier claim. Publication 523 says that when a casualty damages your home, "increase your basis by the amount you spend on repairs that restore the property to its pre-casualty condition," but you must adjust basis "by any amount of insurance reimbursement you receive or expect to receive." Take an assumed 2021 storm payment of $14,000. If it was spent in full on the repair, it is a wash: basis down $14,000, then up $14,000. If it was pocketed and not spent, it leaves basis $14,000 lower than the purchase price and improvements alone would suggest, which raises the gain in a later total loss. The insurer's file knows about that old payment; your basis records may not.

Two notes about land and about what basis is not. Insurers pay for the dwelling, and the lot survives the fire. Publication 547's loss examples treat the land and the building as one item of real property, but neither Publication 547 nor Publication 523 says how to split a purchase price between an undamaged lot and a destroyed house when computing a gain. The worked example here uses a basis for the house alone, and names it as an input; ask your preparer which allocation they will use, and keep the document behind it. And basis is a fourth number beside the three the insurance side already juggles, as our replacement cost versus market value guide explains: the dwelling limit, the rebuilding cost and the market value. The policy never reads your basis, and the IRS never reads your dwelling limit. A house with a $38,000 basis and a $300,000 dwelling limit has a rebuilding cost, a market value and a limit that have moved with the market over the years, and a basis that has barely moved.

Where the tax starts: one $300,000 payout against five different costs

The table holds the payout fixed at $300,000 and varies only the adjusted basis. Every row assumes the main-home tests are met, no claim costs, and no replacement, so it shows the gain before the replacement election could help.

The arithmetic is one subtraction per row: $300,000 less $210,000 is $90,000, less $90,000 is $210,000, less $38,000 is $262,000, less $20,000 is $280,000. The single-filer taxable figures are the gain over $250,000: $262,000 less $250,000 is $12,000, and $280,000 less $250,000 is $30,000. A joint return with a $500,000 limit cannot owe tax on a $300,000 payout at all, because the payout caps the gain below the limit. That ceiling is a property of the dwelling payout alone; a vacation home, a rental, or a house that was never the owner's main home has no exclusion, and the section on the vacation home below shows what that does.

The top row is a household whose basis has caught up with the payout, through a recent purchase or heavy improvements. It has no gain, owes nothing, and has nothing to postpone. The $40,000 shortfall is not a tax deduction in an ordinary fire; the loss section below explains why.

One claim, eight payments, eight treatments

A single house fire produces payments with different tax characters. The table sorts them the way Publication 547 and the Internal Revenue Code do, with eight rows because the lender can touch the money in two different ways, and the sections after it work the ones that carry arithmetic.

The first row covers the claim most homeowners actually make, a damaged house that gets repaired. Publication 547 says that "if you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property." In basis terms, take a house with a $210,000 adjusted basis, a $62,000 fire repair payment and a $64,500 repair bill. Basis becomes $210,000 less $62,000 plus $64,500, which is $212,500, and there is no gain because the payment is far below the basis in the property as a whole. The numbers become interesting only when the payment is large against a small basis, or when the owner collects and does not repair. Publication 547 gives no worked example of apportioning basis to the damaged part of a house, so an owner who keeps a payment larger than the repair spending, on a house with a low basis, should have the preparer do that apportionment instead of assuming the whole-house basis applies.

The second and third rows are the total loss, and they diverge on one fact that most explanations skip: how much the owner is actually paid depends on whether the house is rebuilt. The ISO Homeowners 3 Special Form, HO 00 03 10 00 (the October 2000 edition, copyright 1999), says in Section I Condition C.2.d that "we will pay no more than the actual cash value of the damage until actual repair or replacement is complete." Our recoverable depreciation guide covers how that second payment is released. For tax, the consequence is that a household that rebuilds receives more money, and so has more gain, than one that takes the first payment and walks away. The worked example below puts numbers on that.

A $300,000 total loss from cost basis to tax

Every figure below is an assumption chosen for the arithmetic; none is an average or a real claim. The owner is a single filer who has owned the house and lived in it as a main home for decades, so the exclusion tests are met.

The basis adds up as $30,500 plus $1,500 plus $6,000, or $38,000. The payments add up as $228,000 plus $72,000, or $300,000, which is the $306,000 replacement cost less the $6,000 deductible. Two outcomes follow, depending on whether the house comes back.

In outcome A, $228,000 less $6,000 is $222,000, and $222,000 less $38,000 is $184,000, which is under the $250,000 limit, so the whole gain is excluded and no tax is due. In outcome B, $300,000 less $6,000 is $294,000, and $294,000 less $38,000 is $256,000. The exclusion takes $250,000, leaving $6,000. For section 1033 the amount realized falls to $294,000 less $250,000, or $44,000, and the gain is $44,000 less the $38,000 basis, or $6,000. The rule in section 1033(a)(2)(A) recognizes gain only to the extent the amount realized exceeds the replacement cost, and $44,000 does not exceed $306,000, so the recognized gain is zero. The $6,000 is deferred, and the new basis is the cost less the gain not recognized: $306,000 less $6,000 is $300,000. The $250,000 that was excluded does not reduce basis in this calculation, which matches the pattern of the regulation's example, where a $100,000 house with $20,000 deferred has an $80,000 basis.

The holdback created the only gain that survives the exclusion. The owner who rebuilt received $72,000 more and crossed the $250,000 line by $6,000, while the owner who left the holdback unpaid stayed $66,000 inside it. That is not a reason to skip rebuilding, because the owner in B ends with a house and a $6,000 gain that is deferred, not taxed. It is a reason to know the number before the second check is deposited.

After the exclusion absorbs $250,000, the amount that must be reinvested to defer the rest is only $44,000, not the $294,000 the full amount received. Publication 547's general statement is that the replacement must cost at least the reimbursement received "minus the excluded gain" for a main home, and the regulation's example applies it the same way.

A joint return changes the picture entirely. With a $500,000 limit, outcome B's $256,000 gain is fully excluded, the election is unnecessary, and the rebuilt house has a basis of $306,000, the full cost.

The claim costs matter here at the margin. With no $6,000 fee, outcome B's gain would have been $262,000 and the remainder $12,000. The subtraction is not arbitrary: Publication 547 subtracts "expenses you incur in obtaining reimbursement" from the amount received. If you hired help, our guide to public adjuster fee caps by state shows what states allow those fees to be, and the fee agreement is the document that proves the expense.

The same fire at a vacation home, where no exclusion helps

A second home, a rental, or a house that was never the owner's main home gets no section 121 exclusion, so the whole realized gain meets section 1033 directly. The same inputs, with the $294,000 amount realized and the $38,000 basis, give a $256,000 gain. The table varies the cost of the replacement property.

The recognized gain is the amount realized less the replacement cost, never more than the gain itself: $294,000 less $150,000 is $144,000, less $250,000 is $44,000, and at $294,000 it is zero. The deferred gain is what is left of $256,000. Basis in the replacement is cost less deferred gain: $150,000 less $112,000 is $38,000, $250,000 less $212,000 is $38,000, $294,000 less $256,000 is $38,000, and $306,000 less $256,000 is $50,000. In every case where some gain is deferred the new basis equals the old basis of $38,000 plus whatever extra the owner spent beyond the amount realized, which is the point of the rule: tax is postponed, and the postponed gain is carried inside the new property. Publication 547 adds that replacement property must "function in the same way" for an owner-user, so the home must be replaced by a home, and its example of reinvesting fire proceeds in a grocery store shows what fails the test.

The replacement clock: two years, four years, and when each starts

Section 1033(a)(2)(B) starts the replacement period on the date of the destruction and ends it "2 years after the close of the first taxable year in which any part of the gain upon the conversion is realized." Section 1033(h)(1)(B) substitutes four years for two when the principal residence or its contents were in a disaster area and converted as a result of a federally declared disaster. Publication 547 says the same, and its worked example is a hurricane in September 2025 with payment in December 2025: until December 31, 2027, or until December 31, 2029 had the area been a federally declared disaster area.

The phrase that does the work is "first taxable year in which any part of the gain is realized," because it is tied to payments, not the loss. The assumed fire on June 14, 2026 pairs with a first payment on September 2, 2026 whose net amount, $222,000, already exceeds the $38,000 basis. Gain is first realized in 2026, and the period runs from June 14, 2026 to December 31, 2028, or to December 31, 2030 in a federally declared disaster. The March 15, 2027 holdback falls inside either window. Change the basis to $240,000 on a vacation home, where no exclusion applies (a main home would exclude that $54,000 outright and have nothing to protect), and the picture shifts: the first payment of $222,000 is below basis, so no gain is realized in 2026, and the cumulative payments pass the basis only with the 2027 holdback, when $294,000 less $240,000 is $54,000. The first year of realized gain is then 2027, and the period ends December 31, 2029, or December 31, 2031 in a disaster. Section 1033(a)(2)(A) supports reading the payments together, since it measures the amount realized "regardless of whether such amount is received in one or more taxable years." The reading that gain is first realized when cumulative payments pass basis is an interpretation drawn from the statute and the Publication 547 example, and a preparer should confirm it for a split payment. The earlier of the two possible deadlines is the one that holds under both readings.

The clock can be extended, but not casually. Publication 547 says extension requests are usually limited to one year, are typically made and granted only near the end of the period, and that "the high market value or scarcity of replacement property isn't sufficient grounds for granting an extension." A request that shows construction cannot be finished in time can succeed. Treasury Regulation 1.1033(a)-2(c)(3) requires the application to be made before the period ends unless the taxpayer shows reasonable cause for filing late. A rebuild that stalls on permits or contractor availability is the situation the extension exists for; a rebuild that stalls because the owner is waiting for prices to fall is not.

Two timing traps sit inside replacement itself. Publication 547 says that if you pay a contractor in advance, you "aren't considered to have bought replacement property unless it is finished before the end of the replacement period," so a deposit alone does not stop the clock. And the replacement must be bought "for the specific purpose of replacing" the destroyed home; property acquired by gift or inheritance does not qualify, and it need not be bought with the insurance money itself, since Publication 547 says borrowed money can fund the replacement.

Making the election and undoing it

Postponing the gain is a choice made on the tax return, not a form that is filed on its own. Publication 547 says you postpone by reporting your choice on the return for the year you have the gain, with a statement giving the date and details of the casualty, the insurance received, and how you figured the gain. If replacement property was acquired before the return was filed, the statement describes it, the postponed gain and the basis adjustment. If replacement comes later, the statement says you choose to replace within the period, and a second statement goes with the return for the year of replacement. Treasury Regulation 1.1033(a)-2(c)(2) adds a quiet rule: failing to include the gain in income in the regular manner "shall be deemed to be an election" to have it recognized only to the extent the cost of replacement falls short, even if no details were reported. An owner who omits gain from the return has made the election by omission, and has taken on the obligations that come with it.

Those obligations are the ways it can reverse. If you do not replace within the period, plus any extension, you must file an amended return for the year of the gain and pay the tax. If you replace at a lower cost than the amount realized, the amended return reports the part that could not be postponed. The assessment period for tax on the gain stays open until 3 years after you notify the IRS of the replacement, of an intention not to replace, or of a failure to replace, under section 1033(a)(2)(C). A change of mind is allowed: Publication 547 lets you change your mind about reporting or postponing the gain at any time before the end of the replacement period, and its example has an owner who reported a $5,000 gain, bought a $9,000 replacement the next year, and amended to report only $1,000.

A few limits sit beside the election. For an individual whose total realized gain on destroyed property in a year exceeds $100,000, section 1033(i) bars the election if the replacement property is bought from a related person, with an exception for a related seller who acquired it from an unrelated person during the period. For a main home, section 121(d)(5)(B) reduces the amount realized by the excluded gain "in applying section 1033." On the natural reading, the gain measured against the $100,000 line is the $6,000 left after the exclusion in the worked example, and the bar does not bite; the statute does not apply that sentence to the related-person test in so many words, so a preparer should confirm it. For the vacation home above, with no exclusion, the realized gain is $256,000 and it does. Publication 547 lists a parent and child, or a brother and sister, among related persons, so a replacement house bought from a parent, child, brother or sister is the case this reaches. If the taxpayer dies after the gain is realized and before replacement, Publication 547 says the executor or whoever succeeds to the funds cannot postpone the gain by buying replacement property. And once you designate property as replacement in a statement on your return, you cannot later substitute other property, unless the first property turns out not to qualify.

One benefit comes with the election that matters for a later sale. Publication 547 says that if you postpone any gain under these rules, you are treated as having owned and used the replacement property as your main home for the period you owned and used the destroyed one. Section 121(d)(5)(C) says the same, and it depends on the same condition: the new house's basis must be determined in part under section 1033(b), which happens only when some gain was postponed. In outcome B the postponed $6,000 means a rebuilt house inherits decades of ownership and use toward the next exclusion. A joint-return owner whose entire gain was excluded postponed nothing, so the replacement house starts a fresh two-year count.

When the mortgage company holds the money

The sample form's Mortgage Clause says that "any loss payable under Coverage A or B will be paid to the mortgagee and you, as interests appear," and the Loss Payment condition has the insurer pay you "unless some other person is named in the policy or is legally entitled to receive payment." For a total loss on a financed house, that usually means a check made out jointly or paid into a lender-controlled account. Our guide to the mortgage company on the claim check covers how servicers release the money in stages. For tax, the structure raises three separate issues with three different answers.

Does the money the lender takes count? Yes. Publication 547 says the amount received includes any reimbursement used to pay off a mortgage on the destroyed property, and Treasury Regulation 1.1033(a)-2(c)(11) says that in a condemnation a payment to the mortgagee counts as part of the amount realized "regardless of whether or not the taxpayer was personally liable for the mortgage debt." Its example is a $60,000 award to the owner and a $50,000 award to the mortgagee, with $110,000 treated as the amount realized. In the worked example, if the servicer had applied a $55,000 loan balance from the $228,000 first payment, the owner would have netted $173,000, and the amount received for tax would still be $228,000. A household with a large mortgage can therefore have a gain on a payout that mostly went to the bank.

Does money held by the lender count as received? The IRS publications do not settle that. Publication 547 says the gain is reported in the year you "receive" the reimbursement, and section 1033 starts its clock in the first year gain is realized, but neither text addresses a loss-draft account in which the lender holds the funds until work is inspected. Whether the year of the insurer's check or the year of the lender's release controls can move the replacement deadline by a year, so it is a question for a tax professional, and the paperwork that shows the dates is the insurer's payment letter and the servicer's disbursement statements.

Does a lender-controlled disbursement to a contractor count as replacement? Publication 547 writes its advance-payment rule about the owner paying a contractor, and read by analogy, a servicer's staged release is also a payment against work in progress, so the replacement is not bought until the house is finished. That analogy is an interpretation, not a sentence in the publication. A rebuild that runs past the end of the replacement period has not replaced the house in time, whoever wrote the checks.

Living-expense payments: income only above the increase

Payments under Coverage D are covered by their own provision of the tax code. IRC section 123(a) says gross income "does not include amounts received by such individual under an insurance contract which are paid to compensate or reimburse such individual for living expenses incurred for himself and members of his household resulting from the loss of use or occupancy of such residence." Section 123(b) limits the exclusion to the amount by which actual living expenses exceed the normal living expenses that would have been incurred in the period. Publication 547 puts the same test as "the difference between the actual living expenses you and your family incurred during the period you couldn't use your home and your normal living expenses for that period," and lists the expenses as housing rent, transportation, food, utilities and miscellaneous services. A mortgage payment that continues is not among the named expenses, and it is owed either way, which is the same line our additional living expenses guide draws for the insurer.

Take a six-month displacement. The inputs are assumed: actual costs while displaced, and the normal costs the household would have had at home for the same six months.

Actual costs are $15,600 plus $6,900 plus $2,400 plus $1,200, which is $26,100. Normal costs are $4,800 plus $1,500 plus $1,350, which is $7,650. The temporary increase is $26,100 less $7,650, or $18,450. If the insurer paid $18,000 in living-expense benefits, every dollar is excluded, since $18,000 is below the $18,450 increase. If it paid $20,000, then $20,000 less $18,450 is $1,550 of income. Publication 547 has the owner report that excess on Schedule 1 (Form 1040), line 8z, in the year the home is back in use or, if later, the year the taxable part of the payment arrives. The mistake to avoid is treating the whole $20,000 as income, or none of it.

Publication 547 carves out the federally declared disaster case: "if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable," and it points to the qualified disaster relief payments rules. And Publication 547 says you do not reduce your casualty loss by living-expense payments. They are a separate stream with a separate test, which is another reason to keep receipts of the kind our additional living expenses guide describes, because the same receipts that get the claim paid are the ones that prove the payment is excluded.

Belongings: item by item, and the disaster exception

Contents are not part of the house for tax purposes unless a federally declared disaster is involved. Publication 547 says that when a casualty involves more than one item, you figure the result on each item separately, with the one exception being personal-use real property, where the whole property is one item. For contents, that means a gain exists only on an item whose payment exceeds that item's own basis. The sample form settles personal property at "actual cash value at the time of loss but not more than the amount required to repair or replace," so under that wording a payment on an aged item is seldom larger than what the item cost. A policy endorsed to pay replacement cost on contents can change that: an assumed sofa bought for $900 and paid at $1,200 produces a $300 gain on that item, which can be postponed by buying a similar sofa within the replacement period. A replacement-cost contents policy on old, cheaply bought furniture is where a gain can appear.

A federally declared disaster changes the treatment. Under section 1033(h)(1)(A)(i), "no gain shall be recognized by reason of the receipt of any insurance proceeds for personal property which was part of such contents and which was not scheduled property for purposes of such insurance." Everything else, the home and any scheduled items such as jewelry on a floater, is treated as proceeds for a single item, and replacement property similar to the home or its contents is treated as similar to that single item. Publication 547's example has a home destroyed in a tornado in a federally declared disaster area: $200,000 for the home, $25,000 for unscheduled contents, $5,000 for jewelry and $10,000 for a stamp collection. No gain is recognized on the $25,000, and the remaining $215,000 is a common fund that can be reinvested in a replacement home and its contents. Reinvest less than $215,000 and the gain is recognized to the extent the proceeds exceed what you spent. Our scheduled personal property guide explains what moves an item into that scheduled group, and the home inventory guide covers the records that establish what each item cost.

Short of basis: the loss side

A payout below basis creates no gain, and the unreimbursed difference is a casualty loss only if the tax law lets you deduct it. Publication 547 computes a personal-use loss as the smaller of the property's adjusted basis or the decrease in fair market value, less any insurance received or expected, and then applies limits. For tax years beginning after 2017, a personal casualty loss is deductible only to the extent it is attributable to a federally declared disaster, with a $100 reduction per casualty and a reduction of 10 percent of adjusted gross income for the total, in the Publication 547 (2025) text for 2025 returns. For a qualified disaster loss the $100 becomes $500 and the 10 percent rule does not apply, but that relief covers only certain major federal disasters declared from January 1, 2020 to September 2, 2025, so it does not reach a loss from a 2026 declaration.

The statute has moved since that edition was written. IRC section 165(h)(5), as amended by Public Law 119-21 section 70109, allows the deduction to the extent a loss is attributable to a federally declared disaster or a "State declared disaster," effective for taxable years beginning after December 31, 2025. The statute defines a state declared disaster as a natural catastrophe, or "regardless of cause, any fire, flood, or explosion," that the governor and the Secretary determine caused damage of sufficient severity and magnitude. A single-house fire is unlikely to meet that, which is why the fire in this page's examples gets no deduction. Publication 547 also says that if the property is insured and you do not file a claim, you generally cannot deduct the full unrecovered amount, only the part the policy would not have covered.

One piece of the loss rules matters even to an owner with a gain. Publication 547 says that losses not attributable to a federally declared disaster can be used only to offset casualty gains, and that you compare total gains with total losses after reducing each loss by reimbursements and the $100 rule. Gains you choose to postpone are not counted. A household with a contents loss from an ordinary fire and a recognized gain on the house can therefore use the first against the second; a household whose gain is fully excluded or postponed has no gain for the loss to offset.

The basis file to build before the final payment arrives

Most of the work in a payout tax question is documentary. Publication 523 tells owners to keep records documenting adjusted basis until 3 years after the due date of the return for the year of the sale, and a destroyed home is treated as a sale. The records below are the ones this page's arithmetic draws on.

The date columns are as important as the dollar ones. The clock runs from payments, the exclusion depends on months of use, and the election rests on a statement that quotes both. When the claim is still being negotiated, our guide to filing a homeowners claim and the guide to how long a claim takes show when payments tend to land, and the full set of loss guides is at the claims hub.

Payout tax questions