Gain on Reimbursement

If the amount you receive in insurance or other reimbursement is more than the cost or other basis of the property, you have a gain. If you have a gain, you may have to pay tax on it or you may be able to postpone the gain.

Don’t report the gain on damaged, destroyed, or stolen property if you receive property that is similar or related to it in service or use. Your basis in the new property is the same as your basis in the old property.

Any tangible replacement property held for use in a trade or business is treated as similar or related in service or use to property held for use in a trade or business or for investment if:

• The property you are replacing was damaged or destroyed in a disaster, and

• The area in which the property was damaged or destroyed was declared by the President of the United States to warrant federal assistance because of that disaster.

Generally, you must recognize the gain if you receive unlike property or money as reimbursement. But you can generally choose to postpone all or part of the gain if, within 2 years of the end of the first tax year in which any part of the gain is realized, you purchase:

• Property similar or related in service or use to the damaged, destroyed, or stolen property; or

• A controlling interest (at least 80%) in a corporation owning such property.

To postpone all of the gain, the cost of the replacement property must be equal to or more than the reimbursement you received for your property. If the cost of the replacement property is less than the reimbursement received, you must recognize the gain to the extent the reimbursement exceeds the cost of the replacement property.

If the replacement property or stock is acquired from a related person, gain generally can’t be postponed by:

• Corporations (other than S corporations);

• Partnerships in which more than 50% of the capital or profits interest is owned by corporations (other than S corporations); or

• All other taxpayers, unless the aggregate realized gains on the involuntarily converted property are $100,000 or less for the tax year. This rule applies to partnerships and S corporations at both the entity and partner or shareholder level.

For details on how to postpone the gain, see Pub. 547.

If your main home was located in a disaster area and that home or any of its contents were damaged or

Instructions for Form 4684 (2025) 3

destroyed due to the disaster, special rules apply. See Gains Realized on Homes in Disaster Areas , later.