Question

As a result of a flood damaging their home, the Stone family must stay in a hotel for three weeks while their home is being repaired. They pay $4,200 for the room and $1,900 for meals. Their homeowner’s policy pays $6,100 to reimburse the Stone family for the lodging and meals. The family estimates that it would ordinarily pay approximately $1,200 for three weeks of meals. To what extent, if at all, is the reimbursement includable in gross income?

In answer include: relevant facts, issues identified from facts, applicable primary authority, and conclusions/recommendations

Answer 1

Generally, reimbursements are not taxable to the extent of actual costs incurred with relevant documents/ bills in hand to be produced. In the given scenario, the claim policy pays $1,900 for meals, against an actual estimates for the meal would come to $1,200. This means, there will be an additional reimbursement claim of $700 over and above the actually estimated costs. Hence reimbursement to be included in gross income will be $700.