My condo burned down 10/5/12 still not built need TAX ADVICE!

[Joe F.]

Neighbor fell asleep with a pot on the stove and he burned down the entire 55 unit condo building. I own my condo and lived there for 12 years. I had great insurance but it only covered my living expenses for a year in a rental unit .I have paid the $338.00 condo fee each month post fire. I knew the condo wouldn't be rebuilt in a year so I bought a single family home. They are saying that the condo will be finished in February 2015 then I will sell it. Do I have to pay a capital gains tax? Cant I take the money I make from the sale of the condo and put it against the mortgage on my house without paying capital gains tax? I could write off my loss only in the tax year that I lost my condo as a catastrophic loss. I never rented the condo and do not have the annual tax write offs for loss of use like the investors who used their condos as rental units. I welcome any advice. Thanks.

[Bill Exeter]

The condo was your primary residence and as long as you can say that you lived in the condo for at least a total of 24 months (2 years) out of the last 60 months (5 years) you will not have to pay tax on the first $250,000 in gain if you are single ($500,000 in gain if you are married) pursuant to Section 121 of the Internal Revenue Code ("121 Exclusion").

If you gain is greater than the $250,000/$500,000 exclusion, you might look at Section 1033 of the Internal Revenue Code ("1033 Exchange").  However, the IRS has never ruled on a Reverse 1033 Exchange, so it is not clear whether you can acquire your replacement property before you dispose of your relinquished property.  And, the proceeds will be from a sale of the property and not from the insurance company, so the 1033 Exchange may not even apply in your case.  But, if you gain is in excess of the limits, it would be worth having your accountant research 1033 Exchanges.