I received $17,874.10 from an insurance claim on my rental property for water damage. how should I report on turbotax?

[ttran28]

Thank you very much again for your help!!

[PaulaM]

You are welcome 🙂

[Konabella]

Can I jump in and ask a question? I have a similar problem that happened with hurricane Ian. I have a rental and had a lot of the repairs done before the end of 2022 ($11,000). I received my insurance check of $20,000 in 2022. My total repairs was $28,000 but $17,000 was a new roof that I paid for on Jan 3,2023.  How do I manage this over the two year span? Can I take it all in 2023 even though some of it was paid in 2022? I have used Turbo tax for some time but have never run into this. 

Thanks! 

[Mike9241]

from 4684 instructions

Generally, you can deduct the part of your
casualty or theft loss that isn't reimbursable in
the tax year the casualty occurred or the theft
was discovered. However, a disaster loss may be treated differently.
Disaster Losses
A disaster loss is a loss that occurred in an area
determined by the President of the United
States to warrant federal disaster assistance
and that is attributable to a federally declared
disaster. It includes a major disaster or
emergency declaration.

To determine the amount to deduct for a
disaster loss, you must take into account as
reimbursements any benefits you received or
which you have a reasonable possibility of
receiving from federal or state programs to
restore your property.
Disaster year. The disaster year is the tax
year in which you sustained the loss attributable
to a federally declared disaster. Generally, a
disaster loss is sustained in the year the
disaster occurred. However, a disaster loss
may also be sustained in a year after the
disaster occurred. For example, if a claim for
reimbursement exists for which there is a
reasonable prospect of recovery, no part of the
loss for which reimbursement may be received
is sustained until it can be ascertained with
reasonable certainty whether you will be
reimbursed. Since reimbursed in 2022 that would be the year of deduction despite paying some bills in 2023. However, see the following for deducting the loss in 2021.

Election to deduct loss in the preceding
year. If you have a casualty loss from a
federally declared disaster that occurred in an
area warranting public or individual assistance
(or both), you can elect to deduct the loss in the
tax year immediately before the disaster year. A
list of areas warranting public or individual
assistance (or both) is available at the FEMA
website at FEMA.gov/Disasters.
To make this election for a loss in disaster
year 2022, complete Part I of Section D on your
2021 Form 4684 and attach it to your 2021
original or amended return that claims the
disaster loss. See Section D—Election To
Deduct Federally Declared Disaster Loss in
Preceding Tax Year, later.
You must make an election to deduct a 2022
disaster loss on your 2021 return on or before
the date that is 6 months after the regular due
date for filing your original return (without
extensions) for the disaster year. For calendar
year individual taxpayers, the deadline for
electing to take a 2022 disaster loss on your
2021 tax return is October 16, 2023.
Revoking a prior election to deduct loss
in the preceding year. Complete Part II of
Section D if you want to revoke a 2021 disaster
year election to deduct a federally declared
disaster loss in the preceding tax year. Attach
the completed Section D to an amended return

the loss is reported on form 4684 part B

[Konabella]

Thank you so much for your help! 

Since reimbursed in 2022 that would be the year of deduction despite paying some bills in 2023.  So this is saying that yes, I can use the $17,000 that I paid on 1/3/2023 and add that to the other $11,000 in damages that I paid in 2022 and claim a loss of $8,000 after deducting the amount of insurance in paid to me in 2022? The roof was actually done with repairs on Dec 31, but with the holidays I wrote the check for the next day the banks were open. 

I am reading all about the "Adjusted basis" and the "Decline in fair market value" that I need to use to determine my losses. I have actual receipts of the repairs so I would assume I could use my receipts showing my actual cost was over and above the amount of the insurance check? 

[j47young]

I had extensive smoke damage of 183,000.00. Got insurance check for 162,000,00 from insurance. This was on my rental home.  Do Ijust have to report the difference of 21000.00 on my Schedule E as repairs

[Vanessa A]

It depends. Based on the price, if you did a complete remodel to the house which would mean you extended the life of the house which means this would be a capital improvement instead of a repair or maintenance.  

A capital improvement is considered an asset and not an expense and will need to be depreciated over its useful life of 27.5 years.  You will need to walk through the steps of listing the improvements as an asset and then taking depreciation on them. The repairs would be the $183,000 that you paid. You would also need to decrease the "old asset" by the amount of the damage.  This is mostly a depreciation/asset life change and not an actual value change.
 

If any part of the insurance proceeds were for lost rent, this would be claimed as rental income.

If you did not do a complete remodel, or make any capital improvements and the cost was to cover cleaning the smoke off the walls and removing the odor, then you would report the $21,000 as an expense.