tax court case
Introduction
Facts regarding the case Taylors
1- Their residence was damages by the fire
2- They stay in motel for 3 weeks
3- They paid for the motel and meals $2,500
4- They estimate that the meals will only cost $300 for 5 weeks
5- They have insurance contracts for certain living expenses
The homeowners
6- Their homeowners pay a reimbursement for them their cost $2,500
Issues:
Because of the fire damage that occurred for their residence, Taylors have to stay in motel for 3 weeks, and they spend $2,500 for their living and meals. Also, their homeowners paid back for them $2,500. However, their estimation about their meals cost while they are in the motel is $300. They want tax advice from us with regards for this estimate amount. The basic issue is that does need to the entire reimbursement amount taxable?
Analysis:
The general rule for Sec.123 which is related to “the mounts received under insurance contracts for certain living expenses” is that “In the case of an individual whose principal residence is damaged or destroyed by fire, storm, or other casualty, or who is denied access to his principal residence by governmental authorities because of the occurrence or threat of occurrence of such a casualty, 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”
According to this rule the taxpayers, who have to leave their residences for fire damages to live in motel and receive insurance reimbursements of the additional living expenses, are allowed to exclude their reimbursements they received. However, there is limitation and tests for this rule; Under Sec. 123 two primary tests must be met in order to exclude the amount;
(1) The actual living expenses incurred during such period for himself and members of his
Facts regarding the case Taylors
1- Their residence was damages by the fire
2- They stay in motel for 3 weeks
3- They paid for the motel and meals $2,500
4- They estimate that the meals will only cost $300 for 5 weeks
5- They have insurance contracts for certain living expenses
The homeowners
6- Their homeowners pay a reimbursement for them their cost $2,500
Issues:
Because of the fire damage that occurred for their residence, Taylors have to stay in motel for 3 weeks, and they spend $2,500 for their living and meals. Also, their homeowners paid back for them $2,500. However, their estimation about their meals cost while they are in the motel is $300. They want tax advice from us with regards for this estimate amount. The basic issue is that does need to the entire reimbursement amount taxable?
Analysis:
The general rule for Sec.123 which is related to “the mounts received under insurance contracts for certain living expenses” is that “In the case of an individual whose principal residence is damaged or destroyed by fire, storm, or other casualty, or who is denied access to his principal residence by governmental authorities because of the occurrence or threat of occurrence of such a casualty, 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”
According to this rule the taxpayers, who have to leave their residences for fire damages to live in motel and receive insurance reimbursements of the additional living expenses, are allowed to exclude their reimbursements they received. However, there is limitation and tests for this rule; Under Sec. 123 two primary tests must be met in order to exclude the amount;
(1) The actual living expenses incurred during such period for himself and members of his