Your is a different situation.
Rugs versus carpeting makes for a different answer.
If we are talking about area rugs, and they weren't fully expensed, you write the balance of the expense or show it completely depreciated and offset (with a negative expense) the replacement flooring with the insurance reimbursement.
If we are talking about wall-to-wall carpeting, you charge off the balance of depreciation that is left, and depreciate the cost of the new flooring adjusted by the insurance payment.
If you report the insurance payment as income and depreciate the full expense you are paying taxes up front on the insurance payment(s) and recouping it over 27.5 years. I learned in finance class that a buck tomorrow is worth less than a buck today, that is why we have interest. Where there is no difference is if you are able to Section 179 the expense (write off the entire expense immediately).
