Adjustments to Basis
If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. The result is your adjusted basis in the property.
If you make either of the basis adjustments described above, amounts you spend on repairs that restore the property to its pre-casualty condition increase your adjusted basis. Don’t increase your basis in the property by any qualified disaster mitigation payments (discussed earlier under Disaster Area Losses). See Adjusted Basis in Pub. 551 for more information on adjustments to basis.
See https://www.irs.gov/publications/p547#en_US_2021_publink1000225262
