I am not selling the land, since we do plan to rebuild eventually.
Your gain is taxable, since there was no deeded transfer of property ownership. I assume you figured your taxable gain by subtracting the cost basis of the structure only, from the insurance payout.
, if I do rebuild the house from the proceeds, do I even need to report this insurance payout for 2022 return, since it will be used to rebuild the replacement property.
Yes, you have to report it. When you report your loss in the Casualty & Thefts section, (using the cost basis of the structure only) that's where the taxable difference shows up. Since you're not selling the land (or didn't sell it in the same tax year) you can't "not" report it. While you will pay taxes on any gain realized, remember that upon rebuilding and placing the new property "in service", you'll be using a completely new cost basis for depreciation; which is basically the insurance proceeds you received.
Can the basis of the new house be reset and adjusted accordingly ?
It has to be adjusted. Basically, the cost basis of the land does not change. If the land cost basis was $30K before the fire, then it's still $30K after the fire. Remember, cost basis is the "LESSER" of what you paid for it when originally purchased, or it's FMV when placed "in service". I seriously doubt your land will be worth less than you paid for it, when you rebuild and rent it out again.
So when you enter your "new" rental property, it's cost basis will be what you paid for the new structure, plus the original cost basis of the land. The absolute earliest you'll be dealing with this, will be on your 2022 tax return you'll complete next year; and only if you actually rebuild and place the property "in service" in 2022.
As a side note, on the 2021 return ensure that your 4562 depreciation reflects the "entire" property no longer in service (converted to personal use), as of the date of the fire. If the 2022 program works correctly on importing, then that property should "not" be imported into the 2022 program. Once the return is completed "AND" accepted by the IRS, print out the entire return, worksheets, calculation forms and all. Expect 100 pages more or less. I suggest this for a reason.
If the property is imported into the 2022 return when it should not be, most will tell you to "just delete it". But I say "not so fast". If the property was incorrectly imported, it's usually for a valid reason - but not always. You'll want to post back to me for help so I can provide guidance on "things to check" before you "just delete it". More than likely, it was imported in error. But I myself would like to be "absolutely sure" on that, before I "just delete it".
With the IRS hiring another 87,000 IRS agents in addition to the 72,000 they already have, they're not doing that to go after the "rich people". So I'm confident you'd want to be certain of things before you "just delete it".
