Here's how this works, since you decided not to rebuild or restore with the insurance payout.
The insurance payout (all of it) is included in the rental income.
There is no "recapture" of depreciation taken. It's the opposite. You get to claim the remaining depreciation to be taken as a loss (sort-of, as you won't see that loss right away).
Whatever amount is left to be depreciated on the structure gets added to the cost basis of the land. Additionally, your demo costs get added to the land.
So more than likely, when you sell the land you'll be selling it at a loss, and if you sell it soon it will be a deductible business or investment loss.
