Jim Jones had a deductible casualty loss of $10,000 on his 2012 tax return. His taxable income was $112,000 in 2012. In September of 2013, Jim is reimbursed $5,000 for the prior year's casualty loss. He should include the
$5,000 in gross income for 2013.

Question

Quizplus · Accepted Answer

Since Jim deducted the casualty loss in a previous year and later received reimbursement for that loss, the reimbursement amount must be included in his gross income for the year it was received, which is 2013 in this case. This is because the tax benefit rule requires taxpayers to include in their income any refunds or reimbursements received for expenses that were previously deducted and provided a tax benefit.

Jim Jones Had a Deductible Casualty Loss of $10,000 on His