Investors & landlords

The above responses are valid attempts, but not the right way since you have no intention of rebuilding, yet for 2019, you retained the land for the entire tax year.  As you may already know, your losses on rental property can not be "realized" until the tax year you sell the property. This still holds true in your case.

For starters, the insurance payout is 100% reportable as rental income. Period. Remember, you got to deduct the insurance premiums you paid for that policy from the rental income. Therefore, any payout on that policy is reportable rental income.

*ANY* income received for rental property from any source for any reason, *is* rental income. Period. Therefore you include the amount as such, in the rental income section. Get that done, then deal with the loss.

In the assets/depreciation section work through the asset and select the option, "I sold or otherwise disposed of this asset in 2019" and work it through. On the "Special Handling Required?" screen, you *must* select YES. (If you select NO you will be *forced* to enter sales information, and it's a fact that you sold nothing.) Here's the screen-by-screen on this.

While working this through you need to write down the following:

-Date (this will be the in-service date. The acquisition/purchase date doesn't matter)

-Cost

-Land

-Prior Deprec

I am assuming business use percentage is 100%.

Next, your date of disposition is the date of the fire. Leave the "date acquired" alone and continue.

Click YES for Special Handling Required?

Now click the Add An Asset button.

Select Rental Real Estate Property, then continue.

Select Land Improvements and continue.

I suggest you enter the description as something like "Rental Property - Fire Casualty"

For cost, we will have to figure the correct cost here. The cost basically is the value of the land with the depreciation remaining to be taken on the structure added to it. Thus, this increases your cost basis in the land. That means you won't pay taxes on the remaining depreciation when you sell the property, since it's added to the cost basis of the land. This is how you "deduct" the depreciation remaining to be taken on the structure.

First, you need the value of the structure that burned. To get that, subtract the LAND value from the COST (you wrote these down above) . Label this answer "cost of structure".

Now subtract "total Deprec" from "cost of structure". This is the depreciation you have remaining on the structure.

Now add that remaining depreciation to the LAND value.

On your new asset you're entering, enter that amount in the COST box. This effectively increases your cost basis in the land, reducing any taxable gain you may realize when you sell the land. (Or increasing your loss if you sell it for less than this new cost basis.)

The "date purchased or acquired" will be the date you wrote down earlier. Then continue.

Select "purchased new" and "used 100% for business". It's okay for the "started use in business date" to be the same as the previous. This really doesn't matter all that much anyway, since land is never depreciated.

Then continue.

For "special depreciation allowance" select NO and continue. (You don't depreciate the land at all here)

For convention, it doesn't matter which one you select, since we're not depreciating this anyway. Just pick one and continue.

Now on the "Confirm your prior depreciation" screen there will be an amount in there greater than zero (I have no clue why). You *MUST* change it to the digit ZERO. Then continue.

On the Asset Summary screen it shows your 2019 depreciation expense for this as ZERO, and that's exactly what it's suppose to show.

Click continue and you're returned to the asset summary screen.

Take note that both the "old" (burned down) asset and your "new" land asset are listed there. They "BOTH" need to remain on your 2019 tax return and get reported to the IRS.

Next year when you do your 2020 tax return, both assets will be imported. When that happens (and it will) you can just delete the old asset from your 2020 return. Then if you sold the land in 2020 you'll report that sale by working it through the "new" asset.

My method allows you to keep track of your carry over losses on the form 8582, as those will help offset at least "some" of the taxable gain you're going to see on the insurance payout.

Subtract "total deprec" (you figured this earlier) from

Write down the Depreciation deduction amount for 2019. Add this to the "Prior Deprec" amount you wrote down earlier and label the answer "total depreciation". You will need this amount later. Then "Continue" to be returned to the list of assets.