Insurance proceeds on partial rental water damage loss

[kmenace45]

Received insurance proceeds for partial rental casualty loss (water damage).  No gain, the reimbursements were not in excess of the adjusted basis of the property.  Only loss was my deductible of $500 and we don't itemize.  I offset the rental repairs expenses by the reimbursements, however some of the reimbursement was for our labor so there is nothing to offset. Do I have to report that as income though it was for a loss, or alternately can I offset other repair expenses not related to this loss? Or do I reduce the basis of the building? I would love not to have to report it at all. I have read all of the IRS pubs etc and am still confused on this issue. 

[Carl]

Here's the bottom line, with a special note to start:
some of the reimbursement was for our labor

*YOUR* labor is not a deductible expense. Period. End of discussion. It's that simple.In fact, money paid to *YOU* for *YOUR* labor is reportable and taxable income to *YOU*.

For rental property, you paid for that insurance with after tax dollars. In other words, you deducted your insurance payments from your taxable rental income.Therefore any payout of insurance proceeds for any reason is reportable income. Understand it's *REPORTABLE" on your tax return. That doesn't mean it's taxable income. (though it probably is taxable income that will be offset by qualified deductions.)

You will report the insurance payout as rental income on the SCH E. Then you will claim your cost of repairs on the SCH E. If everything balances out, I would expect you to not be paying taxes on any of the insurance payout. Additionally, your deductible if you actually paid it for the repairs, should further increase your deductible rental expenses over the insurance payout.

I offset the rental repairs expenses by the reimbursements,

Sounds correct.

however some of the reimbursement was for our labor so there is nothing to offset.

That too is correct. If you did not pay a 3rd party for their labor to do the repairs, then you have a reportable and taxable gain. But don't worry about it because the depreciation, property taxes, insurance and other stuff will still leave you with a carry over loss.

[kmenace45]

 In my reading of the IRS pubs I must be confused.  It says if you don't receive insurance proceeds in excess of the adjusted basis of your property you don't report the excess reimbursement (or what we received in excess of what we spent and for labor) , that you reduce the basis of your property instead.

Maybe that is just if you calculate a gain on the casualty loss form.

[Critter]

Correct ... but you don't have a gain on the casualty loss form ... enter the income on the Sch E and the correlating expenses in the deductions section.