@Carl The "casualty loss" and "repairs made for restoration" are two different things as per IRS.
My total loss is the FMV reduction which is 16k. This is regardless if my insurance reimburses me a penny.
This is a "loss" to me regardless of whether I make repairs or not. In my case, insurance paid me 14k reducing my net casualty loss deduction to 2k. However, the reduction to the basis is 16k (insurance + deductible).
^^ The above is very clear to me based on Pub 547, 551 and 946
If I chose to do repairs then the restoration must be capitalized, regardless of insurance reimbursement. The only question is, does the restoration go back to the basis or is it a separate depreciable asset.
I feel any restoration should be added back to the basis.
Please refer to example here which leaves the basis untouched. Rev Rul 71 -161
Adjusted basis before casualty loss____________________ $25,000x
Less:
(1) Allowable casualty loss deduction_____ $4,300x
(2) Insurance or other compensation
received or recoverable in the
year the casualty loss was
sustained___________________________ 700x
5,000x
Adjusted basis after casualty__________________________ 20,000x
Plus:
(1) Debris removal expenditures___________ 1,000x
(2) Expenditures for repairs______________ 4,000x
5,000x
------- --------
Adjusted basis after restoration of the property_______ 25,000x
