Must be cause it’s Friday afternoon…but I’m stuck here.
I’m pretty certain that the answer is no but just want other opinions.
My clients are receiving a settlement for their home and since it’s much higher than what they had paid their home…a few years back, we’re just wondering if there are any tax consequences of the settlement.
Thanks 
I have always understood that where insurance premiums are paid with “after tax” money, any proceeds received from that policy will be not taxable…
That applies to life insurance, and possibly other types, but some insurance proceeds are taxable, such as wage replacement insurance.
Logically, if someone’s principal residence was destroyed, there would be no tax payable due to the PRE, but the taxpayer would still have to report the disposition on their T1. If it was a rental property, they would have to report the disposition of that taxable asset, with applicable capital gain or loss. The insurance proceeds would be no different than proceeds from a SALE of that property.
Don’t know about reporting a destroyed property as “disposed” as there’s no change in property ownership (assuming the original owner retains and rebuilds with the proceeds).
Good point. I assumed they were walking away from it, and the insurance company is left with the land to sell.
I too had presumed they’d be rebuilding with proceeds & were insured for “replacement cost”. I can’t imagine any scenario when insurance would be left with title to the real property (but I’m not in that biz)??
We tend to overthink too often. The money is not taxable - it is just oging to replace what was lost. Or at least as far as it will go.
We can’t say that for sure, because @paul has not told us if the client is rebuilding, or selling the vacant lot, or any other details (if he even knows himself). Of course, the “money” itself would not be taxable, but we don’t know if there will be a PRE applied, or the replacement property rules, or if there is some other nuance that may cause a tax liability (i.e. more than 50% of the client’s “home” was converted to a rental property, which means a taxable capital gain may exist).
Given the minimal details, it sounds like, most probably, the client was given a settlement in order to rebuild their principal residence, in which case there would be no need to report anything for tax purposes at this time. However, if they are able to rebuild the home for less money than they received as a settlement, they may have to consider the excess as a reduction of their capital cost? Again, this wouldn’t matter as long as it remains a principal residence, with any future gains shielded by the PRE.
Exactly @Nezzer …no rental property involved, settlement is to rebuild their principal residence…Thanks everyone:-)