Insurance for new roof on rental property $3,000 more than cost to replace. Roof not separate asset, so TT depreciates whole building with gain of $15,800. How to enter?

[HICA]

Hail storm 4/1/17.  Insurance proceeds for new roof $26,063.  Cost of new roof $22,767.  Seems to me I should have a gain of $3,296, but roof is not a separate item on Turbotax.  Building purchased 10/31/92.  Cost (excluding land) $63,857.  Depreciation through 12/31/16 $53,890.   Turbotax wants to tax me on $15,800, the difference between the $26,063 paid by insurance and the land cost, assuming the building was totally destroyed, but only the roof was damaged.  Is this the correct way to enter?  I don’t have the roof as a separate asset in the rental property section.  What about the cost to replace the roof?  Do I start a new asset called roof at $22,767?

[PaulaM]

No, do not add the roof as a new asset. The cost of the repair (replacement) would be entered as rental expenses. Add the insurance reimbursement as rental income.

Taxes are then paid on the $3,296 difference. See article below for reference.

Tax implications of Involuntary Conversions

[edited 1/11/18 5:36 pm PST]

[maglib]

I would think there is no new asset to add since there was no bottom line cost. Just a gain from insurance proceeds in excess of cost.  Otherwise OP would get benefit twice.   See a response from another superuser to a similar question:  <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4133912-for-a-rental-property-the-insurance-payments-are-greater-t...>

[PaulaM]

@maglib See page 13 of pub 946. Paragraph 'how to treat repairs and improvements'.

[maglib]

@TurboTaxPaulaM  there is no cost for the repair/replacement to OP therefore no basis to depreciate.  See link to @Carl answer above.  Page 11 of Pub 946 <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p946.pdf">https://www.irs.gov/pub/irs-pdf/p946.pdf</a>  if you receive property in a nontaxable exchange,
the basis of the property you receive is the same as the adjusted basis of the property you gave up so the old roof stays part of the home and no change needed to depreciable basis. or even better Page 46 Nonvoluntary conversions continues same thoughts.  you can't depreciate the cost and also reduce the gain as that's double deductingfor the cost of the roof.

[Hal_Al]

I agree with maglib, you do not enter the new roof as an asset. It has no cost basis.  You continue to depreciate the original building cost basis on the original 27.5 year schedule.
The only thing reportable on the tax return is the $3000 gain. But, I'm not convinced the $3000 is a capital gain. It may be ordinary income.

[PaulaM]

Researching...

[PaulaM]

@maglib @Hal_Al  Thank you for your help. You had great points there.

[maglib]

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p547.pdf">https://www.irs.gov/pub/irs-pdf/p547.pdf</a>  gain reportable on page 15.  Note OP can deduct expenses for obtaining insurance refund from the gain.