@NGNJ wrote:
Hello
I have a rental property that had a casualty (fire). The property has always been a rental property.
The insurance payout was $100,000
I have decided not to make repairs but to sell the property "as is".
If I sell the property "as is" is the insurance payout classed as income since I didn't use for repairs?
The adjusted cost basis of the property is $70,000. If I sell for $130,000 the capital gains will be $60,000. Correct?
The insurance payout reduces your cost basis. If you made repairs, that would increase your cost basis. Since you are selling as-is, this is what happens.
a. You receive the $100,000 payout. This reduces your cost basis to zero, and the remaining $30,000 of the payment is taxable income (at ordinary income tax rates)
b. Then you sell the property for $130,000. The entire $130,000 is capital gains. Some is taxed as depreciation recapture (ordinary income tax rate capped at 25%) and the rest is a long term capital gain.
You don't say what your original cost basis was so I can't tell you what your recapture will be.
You may want to see a professional this year.
