Restaurant Burnt Down.... what are my tax alternatives to the insurance check, which equates to almost 50k??

Question

Do I have to take a Capital Gain? Can I give the money as a gift to avoid being taxed on the money? What about my unclaimed salary as owner?

I plan to speak with a tax accountant, thought I'd get some insight before hand.

Answer 1

There are no tax consequences. You have no gain. The insurance check is simply replacing your loss.

Answer 2

Giving the insurance check away as a gift won't change this answer.

Your unclaimed salary as owner is phantom income which you won't claim on your taxes and therefore won't get taxed on it....

As for your actual gain or loss, use the casualty form 4684 and IRS publication 547 to determine if you have a gain or loss after taking the insurance check into consideration.

"Postponement of Gain
Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed or stolen property. Your basis in the new property is generally the same as your adjusted basis in the property it replaces.

You must ordinarily report the gain on your stolen or destroyed property if you receive money or unlike property as reimbursement. However, you can choose to postpone reporting the gain if you purchase property that is similar or related in service or use to the stolen or destroyed property within a specified replacement period, discussed later. ...

If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property.

To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement.

Answer 3

If the insurance check is to reimburse you for your loss of your restaurant, it isn't taxable. If some of it is for lost wages, that part would be taxable.

If you give a gift you don't get to deduct it unless it's to a recognized charity, then it could be an itemized deduction.