Partnership LLC rental property had a fire

[tjcastagna]

Good Afternoon.

My wife and I have a Partnership LLC for one rental property in Minnesota.  It is one  townhome unit in an eight unit building.  (There are a total of 2 buildings (16 townhome units).  There was a fire in the adjacent townhome unit that affected and completely destroyed our townhome as well on 24-May-2021.  We had insurance with income loss protection.  So, we effectively had rent covered at 98% of what we would have collected.  We let the bank know.  But, we continued to pay mortgage, property taxes,  association dues and insurance and as we normally did with a renter.  We have not had any out of pocket expenses while rebuilding the property in 2021.   We are assuming that we cannot not just enter our business taxes as we normally did since we were depreciating to property for the year.  We are not sure what things we need to select and entered in Turbo Tax Business to enter our business taxes properly.   Has anyone else gone through this that help guide us?  We are filing an extension for our business taxes while we get this sorted out. 

Much Thanks for any help in advance

Kind Regards,

Tim & Carmen

[RobertB4444]

The insurance reimbursement for the damages is not taxable.  But the reimbursement for the rent IS taxable.  You should enter those payments as rent received for the year and then enter your expenses just as though you had a tenant for the year.  In this case the insurance company was your tenant.  

If you have expenses that are part of refurnishing the condo you may have to depreciate those over time.  But any other expenses that you would have incurred in a normal rental year are deductible just as they would be.

[Carl]

Was the property rebuilt and "in service" (available for rent) on or before Dec 31 2021?

The insurance reimbursement for the damages is not taxable.

That's not quite accurate. Assuming the payout was for "total loss", you effectively sold the rental unit to the insurance company. Any gain realized is taxable, but I seriously doubt there was any gain to tax. There "might" be taxable depreciation recapture though. That doesn't change the fact that it's still reportable.  Note that if you claim any land value for the property on SCH E, you did not sell the land. You only sold the structure. (Insurance does not insure the land, and there is no change in the cost basis of the land.)