A pipe in my kitchen leaked resulting in damage for which my insurance company paid $31,000 based on a repair estimate submitted by a "restoration" company they selected (I have "replacement cost" coverage and the insurance company says they are paying to restore the house to its condition 1 second before the leak). Moldy, asbestos-laden drywall has been ripped out but repairs haven't started. I will likely select a higher grade of cabinets and counter tops than previously existed which will increase the home's value but the repair to damaged floors may be imperfect reducing its value. The estimate/insurance claim included replacing flooring throughout the house but I may just have the damaged area repaired (refinished) and hold back the rest of the settlement for that until I sell the home at which point I can either redo the floors or give a buyer a credit or just reduce the price. So in effect, some aspects of the repair will increase the house's value, others may reduce it and not all of the insurance money may get spent right now. Also, I don't know to accurately assess the affect of any of these things separately on the house's value. How do I account for all this in my current year's taxes? Do I just accept the insurer's assertion that the money they are paying restores the value of the home with neither a loss nor gain and not report any of this?
