I can see why you're a bit confused here. Hopefully I can help clarify things. This applies to the 2016 return.
- First, the property should be classified as residental rental real estate up until the day you sold it. It's legal for you to do so, and it makes the paperwork a *LOT* simpler and easier.
- You will not report one single penny of the insurance payout on the SCH E. That gets done elsewhere.
- You will not report one single penny of loss due to the fire on SCH E either. That will be done elsewhere.
- Work through all rental assets and mark them as removed from service for personal use, on the date of the fire. On the "special handling required?" page, select YES.
- Your repairs to the rental property are not really "repairs" per-se. They are property improvements and get reported as such. Your cost for that gets entered in the assets/depreciation section. If after the property was all fixed up, you did "NOT" rent it out, then when entering the asset, your percentage of business use will be ZERO. That means no depreciation will be taken on that asset, since the fact is, it was never used to generate income.
One final note of significant importance on the insurance payout. Generally, a rental dwelling insurance policy will also provide for up to 85% of "lost rent" for anywhere from 6 months to a year. You ***MUST*** report that portion of the payout as rental income on the tax return for the tax year you physically received that payout. It *is* taxable rental income, so must be included in the rental income received for the tax year the insurance paid it to you. There should be a breakdown of the payout amount provided to you by the insurance company that shows you the exact dollar amount of the payout that was for lost rent.
- Now to account for the loss, you say only the kitchen burned. We still have to deal with that on the SCH E. But I'm not doing so at this point yet, so as not to add to the confusion. Basically, you will have what is called a "reduction in basis". I'll discuss that in another post if you need me to.
All the above applies to the SCH E. Next, I discuss the losses and the insurance payout.
- You will claim your loss under the Deductions & Credits tab in the Casualty & Thefts section. You'll deal with the insurance payout in there also. Pay attention to detail ans the small print on each screen as you work this through. *It* *matters* *big* *time* for correct reporting.
would that increase my basis or would it remain the same.
It would most likely increase the basis. While it's possible for it to remain the same, I doubt that will happen. It will definitely not reduce the basis though. We'll get to that after I know you understand all the above, and we cover the method of reducing the basis on what burned. Slow and easy I say. One step at a time.
