IRS pub 4345
Loss-in-value of property
‧ Property settlements for loss in value of property that are less than the adjusted basis of your
property are not taxable and generally do not need to be reported on your tax return. However, you
must reduce your basis in the property by the amount of the settlement. ‧ If the property settlement exceeds your adjusted basis in the property, the excess is income.
* in my opinion you would first offset the cost to repair the damage by the proceeds and only any excess proceeds would reduce your basis.
