So lets start from the beginning. First, understand that in your specific case, since you did not rebuild, what you did with the payout *does* *not* *matter* one iota.
In the past, the insurance premiums you paid on the policy each year for that rental property were a tax deductible rental expense.
Therefore, all income received for that rental property from any source for any reason (including the entire insurance payout) is included in the total rental income received in the tax year. Every single penny of it. There is no separation of the payout amount declared for "lost rents". The taxability of that income may (or may not) be offset by what you do with that money. In your case, since you did not rebuild or repair, not a single penny is offset. *AT* *THIS* *POINT* *IN* *TIME*. It's reportable rental income. Period. End of Story. But all hope is not lost.
Before I can continue I need to know if the structure was declared a total loss by the insurance company, and is therefore totally and completely uninhabitable. Hopefully, yes. It makes dealing with this in TurboTax that much easier.
