Insurance proceeds paid in 2022 but claim not finished until 2023

[kfintoni]

Hello all,

I had a fire in a rental property in Oct 2022. I was paid my claim amount minus depreciation and deductible in 2022. I was paid my hold back amount in 2023. MY question is this. I still have outstanding work and balances on the claim as of 4/2023. How do I handle this in regards to deductions so they do not think I have tons of money left over from the initial claim?

If it helps I am also selling this property as of the end of the month.

Thank you

Karen F

[DaveF1006]

To clarify, what do you mean by the hold back amount? Was this the insurance payment for your claim or some other amount?

[kfintoni]

I received my pay out minus the deductible then this past month I was paid out my hold back. It was money they held back until the repairs were done. I had to prove that I had made the repairs to the property with the money. My issue is I was paid a rather large lump sum in 2022, over 50K for the repairs but many of the bills were paid out in 2023 and there is still a bit more to be done and will be paid out in the next few weeks. I also just realized that my lost rent was placed on one 1099 dated for 2022 but some of the lost rent was for 2023? 

[DaveF1006]

It doesn't matter when the repairs were paid out. it matters when the loss occurred according to IRS Publication 515 which states "Casualty losses are deductible in the year you sustain the loss, which is generally in the year the casualty occurred". Since you are reporting all of your losses in 2022, this could result in a sizable causality deduction for the 2022 tax year.

What about the hold back payment for 2023? You could report this as part of the insurance reimbursement amount reducing your net causality loss amount in 2022 or wait until 2023 and report the hold back payment as other income on your 2023 return. You can decide which option is best for you.