Natural disasters such as hurricanes, tornadoes and wildfires destroy many homes each year, and the same is true for accidental fires. People also lose homes that have been condemned by a governmental body under the power of eminent domain.
When such tragedies occur, the homeowner often receives payment from an insurance company. This is known as an involuntary conversion.
Tax professionals should understand the tax consequences of an involuntary conversion of a taxpayer's principal residence to be able to advise their clients properly.