Noelle\'s diamond ring was stolen in 2017. She originally paid $19,300 for the r

ID: 2330697 • Letter: N

Question

Noelle's diamond ring was stolen in 2017. She originally paid $19,300 for the ring, but it was worth considerably more at the time of the theft. Noelle filed an insurance claim for the stolen ring, but the claim was denied. Because the insurance claim was denied, Noelle took a casualty loss for the stolen ring on her 2017 tax return. In 2017, Noelle had AGI of $96,500. In 2018, the insurance company had a "change of heart" and sent Noelle a check for $11,580 for the stolen ring. The per event floor is $100. What is the proper tax treatment of the $11,580 Noelle received from the insurance company in 2018?

Explanation / Answer

Noelle will include in 2018 taxable income the receipt from insurance company but it should not exceed the tax benefits taken earlier in 2017:

Theft Loss

19300

Less: Floor $100

-100

Less: Floor 10% of AGI

-9650

Tax benefit taken

9550

So she should include lower of $9550 or 11580, i.e. 9550 in income for 2018