Our Condo unit above our house (rental property) had a leak in the bathroom which led to our unit resulted in water damage. It cost us 6,400 USD to do the repairs however, I received 11,000 from my insurance. How do I report this transaction on my tax return? Is Form 4864 need to be filed as I assume this would not be considered a casualty? Please advise if otherwise. We also sold the property last year as well.
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No, you will not claim a casualty loss unless you are in a federally declared disaster area.
The cost basis for your home portion of the property will be decreased by the loss and increased by the insurance proceeds.
If you choose to report the sale of your home, it will ask you about the depreciation you used for the rental. This will allow a partial exclusion for gain on your home if you qualify.
Thank you for your valuable feedback. Can you advise which publication indicates the treatment of reducing the cost basis by loss and increase by insurance proceeds?
This is the IRS reference for Casualties: About Publication 547, Casualties Disasters and Thefts
Look for the section on Insurance.
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