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Investors & landlords
Since the residence was destroyed, you can claim no further depreciation or expenses. The IRS rules for vacant or idle property apply only if the rental asset itself is still available to be rented. Essentially, your rental business ended when the property was destroyed.
You can claim the mortgage interest and any property taxes as itemized deductions.
Or you have the option to capitalize the mortgage interest, property taxes and insurance as construction costs for the new residence. See this article from The Tax Adviser (an authoritative source) regarding the election to capitalize: Elective capitalization as a TCJA planning tool.
You may wish to consult a local tax expert for advice on the best course of action in your particular tax situation.
You will need to report that you disposed of this rental activity on your tax return. When you do this, TurboTax will delete all forms and schedules related to this property.
Also, all passive losses will be released to be used to offset passive gains on your return. Any unused passive losses will carryover. You'll need to keep good records on this so you can re-enter any carryover losses that aren't transferred to future returns.
When the reconstruction is complete, you can report a new rental property.
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