Thank you for your answer. Unfortunately, here in California, the property is assessed on the year it was purchased and does not in any way reflect the amount that the house is worth. I bought the house in 1996 for $116,000 and did an addition in 2004 for $111,000. If I use the cost as $227,000 (Form 4684, line 2) and then subtract the insurance payment of $268,000 for repairs, I am in a gain situation (line 4). The lowest bid to repair was $282,000, which I took. I spent over $8,500 of my own money to repair the house. Is that not deductible?
