you didn't tell us what happen with the loan on the asset. was that paid off by the insurance?
for example 1) FMV 1800 loan $1000 you receive $800 because the insurance company pays off the loan
you have an $1800 gain since the asset is fully depreciated.
bookkeeping entries
cash debit 800
asset credit xxxxx
accumulated depreciation debit xxxxx
loan debit 1000
gain credit 1800
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example 2) FMV 1800 loan $1000 you receive $1800 because the insurance company did not pay off the loan that's your obligation
cash debit 1800
asset credit xxxxx
accumulated depreciation debit xxxxx
gain credit 1800
when you pay off the loan
cash credit 1000
loan debit 1000
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as you can see the loan has no effect on the gain
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now if for some reason the loan isn't required to be paid off either by the insurance company or yours then you have an additional $1000 of income from the forgiveness of debt.
