Not exactly. You don’t pay taxes on your hand. And if you intentionally harm an insured good you void the insurance.

It’s more like, suppose that you get married. You and your partner each own a house. Since you’re joining into a single household, you now technically belong to the next tax bracket as your net worth is both houses combined, so you pay more taxes. Your expenses are also the sum of the maintenance of both.

You think, since you’re only going to live in the one house to rent the other. But as it turns out, almost nobody wants to rent your house, the price people are willing to pay doesn’t cover maintenance and property taxes, plus you also have to pay income taxes on the rent. The whole ordeal isn’t profitable.

So instead you sell one of the houses. Overall you paid less on administrative and sell taxes. From now on you don’t have to pay maintenance or property taxes anymore. And your net worth in properties falls back to the previous tax bracket so you pay less taxes overall. Additionally, for this tax season only, you get to write part of the value of the house as a net loss, arguing you sold the house under value. So the cash you get in hand is not revenue and isn’t taxed and your final tax is further reduced by the loss of net worth.

Now you have a cushy lump of money to sit on, and in the future you and your partner are no longer burdened with the costs of the second property.