Insurance claim for hail damage to rental property

[dbonsukan]

 I just want double check if I'm doing this right.  In 2022, I filed an insurance claim to replace the roof on a rental property.  For illustration purposes, the total replacement cost billed by the roofing contractor was $10K.  The insurance paid me $6K and the $4K difference was the deductible I had to pay out of pocket.  The roof replacement was completed at the end of July 2022.   Do I report the $6K as rental income and then treat the entire $10K as a capital improvement to be depreciated over 27.5 yrs?  Thanks!

[DavidD66]

No, your cost basis for the new roof is $4,000.  If you capitalize it, the amount would be $4,000 and I would depreciate it over 15 years (roofs don't last 27.5 years.  Alternatively, you may want to expense the entire $4,000.  If all you did was replace the shingles, and not the actual underlying roof, then I would consider it a repair, not a capital improvement.    

[dbonsukan]

Hi David,

It was a roof replacement--shingles, underlayment, valley metal, drip edge, flashing, ridge cap, roof vent, and more...  

[DaveF1006 · Accepted solution]

No. You will not declare $6K as income but you will depreciate $4K over 27.5 years because that was your actual replacement cost for the roof that you paid out-of-pocket.