How to I estimate Fair Market Value of rental property partially destroyed by vandalism

Forum|Forum|3 years ago
December 26, 2022
1 reply
16 views

A tenant completely destroyed the kitchen in my rental apartment and caused other damages to the unit. I spent $40K to repair the damage and put a new kitchen. I received $29K reimbursement from insurance company ($30K "Estimate of Covered Damages," less $1K deductible).

For the purpose of reporting casualty loss, how do I calculate FMV of the lost property? Should I just use the $30K insurance estimate and record $1K loss? Or is there another prescribed method?

Do I also need to adjust the basis of the property and if so, how?

Thank you all

Tax Advice

Mike9241

Level 15

i have provided a link to form 4684 - the form is used to report gain/loss of casualties to business property including rental property

look at page 2 section B part 1 line 20

what's supposed to be entered there is the tax cost of the destroyed property reduced by the depreciation taken on it

you probably have no idea what these amounts are.

on 21 you report the insurance proceeds

22 can be a gain if insurance exceeds the depreciated cost from there unless you have other casualty losses, you now have taxable income

I would suggest that instead of reporting it this way. You reduce the $40K you spent by the $29 K insurance and depreciate the remaining $11K

https://www.irs.gov/pub/irs-pdf/f4684.pdf

Mike9241

Anonymous_

Level 15

@Mike9241 wrote
I would suggest that instead of reporting it this way. You reduce the $40K you spent by the $29 K insurance and depreciate the remaining $11K

Yes, a simple procedure and more accurately reflects the amount of the insurance payment and out of pocket cost.