@DanielV01 @M-MTax I have read Pub 946. However, I was unable to get an answer for my scenario.
Here is my view based on the Rev Rul 71-161
https://www.irs.gov/pub/irs-utl/am2006006.pdf
The casualty loss is the FMV reduction which I will base on the cost of repairs = 16k.
The net casualty loss for me is 2k, my insurance deductible.
Even with this casualty loss claimed, the basis is reduced by FMV reduction = 16k. Any amounts spent (reimbursed from insurance or not, casualty loss or otherwise) on restoring the property to its original condition must be added back to the basis of property.
This example also addresses the partial insurance reimbursement scenario where the basis remains unaffected.
Question: Why is the 2k spent out of pocket and claimed as net casualty loss not added back to the property basis? (It is just the cost of restoration)
@Carl Would appreciate your input.
