Adjusted cost basis of rental property sale after casualty

Hello,

I had a rental property (in NJ) that had two casualty (fire) losses in 2020. After the second loss I did not repair the property and sold it "as is" in 2021.

I included the insurance reimbursements on Form 4684 for my 2020 return.

For my 2021 return when I calculate the sale price/adjusted cost basis for the sale I'm assuming that any insurance reimbursement cannot be used to adjust the basis even though the property was more valuable (new roof, floors kitchen etc) after repairs.

I am looking to use the purchase price and associated costs as the cost basis. There were a few repairs after I bought the property in 2015 and those were deducted from that year's return.

140

Expert Alumni

Mar 29, 2022 10:48:27 AM

Yes and no. You can add the roof, floors and kitchen to the basis, BUT you need to deduct the insurance proceeds from the additions. So, say you spent $100,000 on the new roof, kitchen, flooring, etc and the insurance only reimbursed you $90,000, your basis in the house would increase by $10,000.

You cannot add to the basis expenses you deducted already over the years.

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Adjusted cost basis of rental property sale after casualty