Gain from the Destruction of your Primary Residence (Tax-Free Exclusion)

This post continues my discussion regarding the California wild fires and income tax relief and strategies available to the fire storm victims.

Homeowners who are insured and lose their principal residence can exclude from their taxable income up to $250,000 in capital gains per person ($500,000 for a married couple) pursuant to Section 121 of the Internal Revenue Code. The gain, if any, above the $250,000/$500,000 exclusion limitation can be reinvested in like-kind replacement property on a tax-deferred basis under Section 1033.

The insurance proceeds that you receive for your personal property contents is tax exempt.

Because a natural disaster such as the California wild fires is considered an unforeseen circumstance, disaster victims who lived in their primary residence less than the required two (2) years are able to take a partial tax-free exclusion under Section 121.