You will report it exactly as you would if it were rented the entire year. The only difference is, you will have zero rental income, and the expenses you paid for the repairs.
Also note that any monies received for any reason from any source for rental property is rental income. So that will include the insurance payout.
You should also check your policy, as most rental dwelling policies I deal with include a provision for loss of rent, where in addition to paying for the damage and repairs, the policy also pays out a maximum of 85% of the lost rent for a period of time. Generally 6 months. But I've seen policies that will pay up to a full year of lost rent.
So once you include the insurance payout in the rental income, it's taxability will be offset by the repairs you used that money to pay for.
The insurance payout is reported in the tax year it is paid to/received by you. The repairs are reported in the tax year you pay that expense.
So why is your insurance payout taxable? Because, those premiums you paid for the coverage were a tax deductible rental expense. Therefore the payout is reported as rental income on the tax return, and it's taxability will be offset by the deductible repairs and other expenses that payout was used to pay for.
