@Khuls , You really have two different transactions/tax events here --- (a) Casualty loss, the tax treatment of which is 1. Loss = FMV prior to casualty LESS FMV immediately after loss . Depreciable Gain in Asset Value = Cost of remediation LESS Insurance settlement LESS FMV prior to casualty loss. Generally people will do remediation only to old FMV --- remediation/repairs etc beyond that is gain in asset value. Thus you handle the Insurance settlement in the Casualty loss --- if all the insurance settlement just brought your property to old FMV then there is nothing to report. If you did not do any remediation but received the insurance monies less deductible then it is assumed that the insurance settlement has made you whole and the only loss you would then have is the deductible for the insurance settlement. 2. Sale of the property -- this is where you essentially use your book value ( i.e. Acquisition Basis + Cost of improvements LESS accumulated depreciation allowed or allowable ) and the sales price to compute gain / loss . Note that un-amortized amounts are released and recognized at disposition, -- in a round about way. It shows on Schedule-E and creates a suspended loss that has to accounted for on 4797 for the sale of the property. If you are uncomfortable with this complication, it may be worthwhile to seek professional help. There is no way back since this is the final settlement of this asset.
Hope this helps
@Carl may be able to provide more clarifications on this
