The basis is normally adjusted. And then from there it gets complicated because until the property is depreciated for the remainder of its useful life, those depreciation calculations are done manually. You can no longer use the depreciation tables (which is how most software will determine depreciation). Please see the following reference from IRS Pub 946 for additional information: Basis adjustment due to casualty loss.
However, in your case, your basis (provided you are not taking a deduction for what you paid your contractors, and you do not claim net casualty loss of 2,000), is "returned" back to its original amount, which will allow you to continue to depreciate the property "on schedule". However, if you do claim the contractors payments as expenses (theoretically), then the basis for depreciation would also be re-calculated, and that gets complicated because you can no longer use the automatic depreciation calculations provided by software. This balances out over the life of the property.
@Carl can probably provide additional details.
@Anonymous
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