I'll try my best here.
My questions are how do I write off part of the previous depreciable base of the property.
Because of the way the program is designed, it really can't handle these types of situations correctly. But there is "a way" to do it correctly if you don't mind going around your elbow to get to your thumb and "then" jump through a few hoops of fire. 🙂 First, lets deal with the loss separate from the upgrades.
The 60% Loss
Get into the assets section. understand that the value of the land will never change.
Next, reduce the value of the structure by 60%. If doing this doesn't reduce the prior year's depreciation by 60%, then you reduce it manually. If that doesn't make the current year's depreciation reduce by 60% from what would have "normally" been taken, then you can reduce it manually. (Once you reduce cost basis of the structure and prior year's depreciation manually if necessary, I would expect the program to auto-compensate with the "new" correct current year depreciation.)
Next, enter a completely new asset classified as Residential Rental Real Estate using the original in service date. Enter the structure value of whatever your 60% loss is, and of course the land value on this new asset will be zero.
Next, you will report the sale of "only" this newly entered asset to the insurance company for whatever the insurance payout was. I know full well that the depreciation recapture on this will be "recaptured". That gets handled once this sale is reported.
For the recaptured depreciation of what was lost, you'll report and include that amount in your total loss under the Deductions & Credits tab in the Casualties and Thefts section.
For the 40% upgrades/property improvements
Enter that as yet another new asset classified as Residential Rental Real Estate with a cost basis of whatever that 40% is for the structure, and a value of zero for the land. The in service date will be whatever date on or after the work was completed and the updated/upgraded property was available for rent.
