When it comes to rental property, all income received from all sources for any reason (including an insurance payout) is included in the rental income section in the tax year it is received. It gets offset by the cost of the things it's used to pay for. Repairs are then claimed as repair expenses, and property improvements are entered in the assets/depreciation section and depreciated over time.
For example, if the entire roof was re shingled/replaced, that's a property improvement. The cost of that is entered in the assets/depreciation section and depreciated over the next 27.5 years.
If you had to replace a few sheets of sheet rock in the house, then that would be a repair expenses. Whereas if you had to replace a major portion of sheet rock throughout the house, that would be a property improvement.
