The insurance for 2021 was paid in 2020. In 2021, the insurance company issued us a check, refunding the prorated portion of the year after the sale.
Simple really. It gets included as rental income for 2021.
"reduce the basis of the property with the 2020 tax reimbursement." We had already paid the taxes; we were being reimbursed at closing for the portion covering the dates from closing (in August)- through the end of the year.
Again, the simplest thing to do is to include it as rental income. If you go changing the cost basis on "any" asset, that will totally screw up the depreciation and the depreciation history. So don't go changing the cost basis of anything. Ever.
In the year you paid those taxes, the full amount paid in 2020 was 100% deductible on SCH E. Now that you're being paid back part of it in 2021, it's taxable. So just include it in the rental income for 2021 and you're good.
