I have rental property that cost $225,000 about 10 years ago. Land was valued at $100,000 and building at $125,000, so the building is being depreciated using 27.5 years or $4,545/year, so accumulated depreciation is $45,450 and adjusted basis on the building is $79,550, + $100,000 for the land or $179,550 for the property. In 2022 it experienced storm losses. Insurance evaluated covered damages to the house of $70,000 and paid $64,000 after the deductible. In addition, there was non-covered loss of the seawall that will cost $75,000 to replace. A local appraisal valued the property at $645,000 before the storm and $510,000 after the storm, so I claimed a Casualty Loss of $135,000. I did NOT adjust my depreciation schedule, so I need to amend my 2022 and 2023 returns. I now realize that I need to reduce my basis by the Casualty Loss claimed, but that cannot be more than the adjusted basis. Does this rule refer to the Property Basis, or the Building Basis? I assume that if this reduction drives the basis to zero, the depreciation deductions stop. Thanks for your recommendations.
