- Residential rental property. Purchased 8/3/98. Purchase basis (bldg. only) $80,900
- Depreciation-adjusted basis through 2018 is $20,958
- Had storm damage in 2019, repair cost was $4,100. Insurance reimbursement for damage was $7,100. Reimbursement exceeds repair cost by $3,000
- IRS Pub. 551, p. 5, requires that the asset basis be adjusted (reduced) by the excess reimbursement. The excess reimbursement is not income in 2019.
- IRS Pub. 946, pp. 35 and 36, disallow using the depreciation percentage tables after this adjustment. Depreciation must be manually calculated in this situation. Example on p. 36 shows how to manually figure depreciation in 2019 and subsequent years.
If you believe I am incorrect about the IRS requirements in Pubs. 551 and 946 please explain your reasoning. I would be most grateful to learn I am wrong. But if I am correct, then how to handle?
