Insurance payout and sale of property

[BusinessRentalFire]

Rental property caught fire Feb 2022 and I only got 60k to cover 120k in repair cost. So I sold in August 2022.

2022 Fire insurance proceeds 60,000

Basis in house(tracked in turbo tax):20,000

Insurance proceed income:40,000 -- don't know where to put this in turbo tax to link to the property.

2022 Sale of house: 20,000

Basis in house: 0

Gain on sale: 20,000

[Carl]

Treat everything as a sale. (That's basically what it is).

Since your insurance only covers the structure and not the land, while the insurance may declare a total loss, it's not a total loss for you.

Basically, you sold the structure to the insurance company for the insurance payout and retained ownership of the land. Then you sold the land to a 3rd party. Since both sales occurred in the same tax year, you can report it as a single sale. Just indicate that the property and all it's assets were converted to personal use one day before the fire. That stops depreciation. Then report the sale using a sales date of the date you closed on the land sale. Your sale price is the insurance payout, plus whatever you sold the land for, to the third party.

If you have any cleanup costs such as land/debris clearing after the fire, those costs are added to the cost basis of the land.