The property remains classified as a rental, assuming you intend to rent it out again once repairs are done.
What the insurance paid out as rent, gets reported as rental income in the year you received that payment from the insurance company. So if the damage occurred in Oct of 2021 and you were paid a full year's loss before Dec 31, 2021, that entire amount would be included in the rental income for the entire 2021 tax year. Whereas if you were not paid until 2022, then it counts as rental income for the entire 2022 tax year. Remember, income is reported in the tax year it is received, regardless of what tax year that money may be "for".
Assuming the property still remains classified as a rental, then all normal rental expenses can and should be claimed on the SCH E. I.e.; mortgage interest, property insurance payments, property taxes, HOA dues, etc.
Now, before I continue;
- Did you have anything other than the structure itself listed in the Assets/Depreciation section, that was destroyed/damaged, that were thrown out? For example, you may have been depreciating some of your appliances that were trashed and therefore discarded.
- What did you pay out of your pocket for restoring the property back to the condition it was before your loss? I'm not talking normal rental expenses stuff. For example, if you had to pay $1000 out of pocket for reconstruction costs, I want to know that amount. If you had to pay out of your pocket for the new countertops, kitchen cabinets, and/or stove, I'd like to know that please.
I'm asking for this so that I can assist you with getting things back on the right track in the correct way, for your cost basis and depreciation that has been occurring since your loss. If your out of pocket money increases your cost basis then you need to show this increase correctly, and make sure you don't screw up the depreciation history. (Your cost basis may or may not be affected, depending on your out of pocket expense, and what that out of pocket money paid for explicitly)
