CIA Tax Planning & Compliance 2

Question 1

Under IRC Section 1033, a taxpayer who receives insurance proceeds from an involuntary conversion must reinvest within how many years to defer gain recognition on business property?

Accepted Answer

3 years

Answer

IRC Section 1033 generally requires replacement of involuntarily converted business property within 3 years after the close of the tax year in which gain is realized.

Question 2

A homeowner receives a $200,000 insurance settlement for fire damage to a home with an adjusted basis of $150,000. If they do NOT reinvest under Section 1033, how much gain must they recognize?

Accepted Answer

$50,000

Answer

The recognized gain equals insurance proceeds minus adjusted basis: $200,000 − $150,000 = $50,000.

Question 3

Which IRS form is used to report casualty and theft losses for individuals?

Accepted Answer

Form 4684

Answer

Form 4684 (Casualties and Thefts) is used by individuals to calculate and report deductible casualty and theft losses.

Question 4

After the Tax Cuts and Jobs Act of 2017, personal casualty loss deductions for individuals are generally limited to losses arising from:

Accepted Answer

Federally declared disasters only

Answer

The TCJA suspended the personal casualty loss deduction for 2018–2025 except for losses attributable to a federally declared disaster.

Question 5

Business interruption insurance proceeds received by a sole proprietor are generally treated for tax purposes as:

Accepted Answer

Ordinary income replacing lost profits

Answer

Business interruption proceeds replace lost taxable profits, so they are taxable as ordinary income in the year received.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Tax Planning & Compliance 2