If the rental income for the time between the burn date and the date the CO was issued for the new construction was covered by the insurance, then you're right. There's really no need for tax purposes, to convert it to personal use at all. So you'll use the figures on the 4562 from the 2017 return you're completing now. I'm assuming you reported it as a rental for the entire 2016 tax year and showed it as rented all year weather you reported any rental income for 2016 or not. Normally, periods of vacancy between renters also counts as "days rented" too, even though you don't receive income for that short period of vacancy between tenants.
Sounds to me like this will be easier than I imagined if my assumptions are correct, or at least somewhat close.
- The property is shown as rented for all of 2016, regardless of the rental income received.
- Depreciation was claimed for all of 2016 (even though it may not have all been deductible, due to the reduced rental income received in 2016 - even if no income was received at all, really.)
Then on the 2017 return all you're really doing is entering the property as a new asset where you add all the prior depreciation (do not include any depreciation already claimed for 2017) to the value of the land. You don't include the 2017 depreciation because you're going to be deleting that old asset, after you get all the numbers from it for the new construction asset. Besides, neither asset was "in service" before the CO issue date anyway.
Just make sure the "in service" date of the new construction asset is not a date before the CO was issued, and you should be fine.
