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Hail storm with roof damage during 'lease back' period after house sale.

Very complicated situation here. (Asking for a friend / house buyer)
Person purchased a home in early March 2021.
"Lease back" for a month was part of the contract. (So Seller stayed on after closing date as a tenant).

After the lease back period the buyer would make the house their residence (in April 2021).

"Lease back" rent was $0 as part of contract.

There was a hail storm in March during the "lease back" period.

The roof was totaled out because of the storm. The insurance company will pay to have the roof replaced.

Can the person (buyer) deduct the cost of the insurance deductible ($2,500) on tax form?
If so, which year should deduction be made? The year the storm happened (2021) or the year the roof replacement happens (2022). (Has not happened yet).

Thank you.

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2 Replies
MaryK4
Expert Alumni

Hail storm with roof damage during 'lease back' period after house sale.

For tax purposes, a casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. A casualty doesn't include normal wear and tear or progressive deterioration.  There are three types of casualty losses, federal casualty losses, disaster losses and qualified disaster losses. All three types of losses are referred to as federally declared disasters.  For complete details, see About Casualty Deduction for Federal Income Tax - TurboTax.

 

If the casualty loss does not apply, you will be able to adjust the basis of the property, which may reduce the gain when ther property is sold.

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Hail storm with roof damage during 'lease back' period after house sale.


@SMETXBX wrote:

"Lease back" rent was $0 as part of contract.


 

That is not Fair Market Value, so no rental expenses (including a Casualty Loss) are allowed.

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