My rental house was destroyed by fire but I rebuilt and then sold it. How and where do I enter all the expenses as well as the insurance reimbursements?

[jrpriest541]

The property WAS rented throughout 2016 and was declared as such. For that matter the insurance reimbursed me for 6 months rent so realistically it was rented through June 2017. I don't see why you want me to declare it as personal use any earlier than that date.

[Carl]

If the rental income for the time between the burn date and the date the CO was issued for the new construction was covered by the insurance, then you're right. There's really no need for tax purposes, to convert it to personal use at all. So you'll use the figures on the 4562 from the 2017 return you're completing now. I'm assuming you reported it as a rental for the entire 2016 tax year and showed it as rented all year weather you reported any rental income for 2016 or not. Normally, periods of vacancy between renters also counts as "days rented" too, even though you don't receive income for that short period of vacancy between tenants.
Sounds to me like this will be easier than I imagined if my assumptions are correct, or at least somewhat close.
 - The property is shown as rented for all of 2016, regardless of the rental income received.
 - Depreciation was claimed for all of 2016 (even though it may not have all been deductible, due to the reduced rental income received in 2016 - even if no income was received at all, really.)
Then on the 2017 return all you're really doing is entering the property as a new asset where you add all the prior depreciation (do not include any depreciation already claimed for 2017)  to the value of the land. You don't include the 2017 depreciation because you're going to be deleting that old asset, after you get all the numbers from it for the new construction asset. Besides, neither asset was "in service" before the CO issue date anyway.
Just make sure  the "in service" date of the new construction asset is not a date before the CO was issued, and you should be fine.

[txrands84]

I have a similar situation and I am confused by this answer. Everything I've read says to decrease the basis by depreciation, and your saying increase it. If I do this it will lower the gain, and therefore the taxes.

[txrands84]

Your comment also says "Do include the insurance...". Can you direct me to the IRS instructions that allow this?

[Carl]

I think you're just not "getting it" yet. Took me awhile before I got it to. Basically you're recapturing the depreciation by adding it to the value of the land. Then you pay your taxes on that depreciation when you report the loss and insurance payout in the Casualty & Thefts section. It's important to click the links in the Casualty & Thefts section and read them. It tells you that you will reduce your loss by the amount of depreciation taken. That makes the "depreciation part" of the insurance payout taxable income. The program also gives you the option to defer paying taxes on that gain until the year you sell the property too, if you want.  Remember, when reporting it in the Casualty & Thefts section you are NOT claiming a total loss of what you paid for the property. You DID NOT lose the land. Your loss, is the value of the structure ONLY, minus the depreciation already taken on it.

[Carl]

Reporting the Sale of Rental Property

You MUST have done as outlined above in the comments, for this to work out and make sense to you.

If you qualify for the "lived in 2 of last 5 years" capital gains exclusion, then when prompted you WILL indicate that this sale DOES INCLUDE the sale of your main home. For AD MIL personnel who don't qualify because of PCS orders, select this option anyway, because you "MIGHT" qualify for at last a partial exclusion.

Start working through Rental & Royalty Income (SCH E) "AS IF" you did not sell the property. One of the screens near the start will ahve a selection on it for "I sold or otherwise disposed of this property in  2016". Select it. After you select the "I sold or otherwise disposed of this property in 2016" you continue working it through "as if" you still own it. When you come to the summary screen you will enter all of your rental income and expenses, even it it's zero. Then you MUST work through the "Sale of Assets/Depreciation" section. You must work through each individual asset one at a time to report it's disposition (in your case, all your rental assets were sold).

Understand that if more than the property itself is listed in your assets list, then you need to allocate our sales price across all of your assets.  You will only allocate the structure sales price, you will NOT allocate the land sales price, since the land is not a depreciable asset.  Then if you sold this rental at a gain, you must show a gain on all assets, even if that gain is $1. Likewise if you sold at a loss then you must show a loss on all assets, even if that loss is $1

Basically when working through an asset you select the option for "I stopped using this asset in 2015" and go from there. Note that you MUST do this for EACH AND EVERY asset listed.

When you finish working through everything listed in the assets section, if you ever at any time you owned this rental you claimed vehicle expenses, then you must also work through the vehicle section and show the disposition of the vehicle. Most likely, your vehicle disposition will be "removed for personal use", as I seriously doubt you sold your vehicle as a part of this rental sale.

[Sandy74]

I have a question on rental property that had two separate fires.  The rental property in question had a fire in late 2018, we started the rebuild process, then had a second fire in fall of 2019.  We sold the property in early 2020 and had no reimbursement from the insurance company on loss of rental for 2020.  I have put this property in the rental section and get to the sale of the property, but because the sale was considerably less than the purchase price, I am told I don't have to report it.  The same goes with the Casualty Loss.  We received a 1099-S for the purchase of the property, so I am a little confused as to what to do with this rental property.  

[AmyC]

The fires in 2018 and 2019 would have reported casualty losses in 2018 and 2019. See Topic No. 515 Casualty, Disaster, and Theft Losses | IRS.

For 2020, it was not rented so you need to go into each asset and mark that it was sold for $0 except for the house. You are saying that the cost basis of the house minus depreciation over the years is greater than the sales price. The program should still be taking the information and counting it. A loss is deductible. See Sales, Trades, Exchanges

@Sandy74

[Sandy74]

I did report it on the 4797, but there is no where on the form to show how much insurance paid.  The insurance paid for both the 2018 and 2019 fire; however, after the second fire, we decided not to rebuild and sold.  We sold basically the land for $10,000, which is far less than the original price of the house minus the depreciation.  

[Carl]

@Sandy74 You've posted as an "add on" to a thread you did not start, and it's over a year old pertaining to the 2019 tax year.  If you would please, start your own new thread providing all the pertinent details to your specific situation, and I"ll be happy to take a shot at it.

[Honeybunch119]

This is excellent information! I'm in a similar situation and I want to sell the rental property after it is rebuilt. Can you walk us through on reporting the sale of the property, and if possible, how the taxes are calculated.

I appreciate your insights.

[Carl]

@Honeybunch119 you have posted as an "add-on" to a thread that was originally started back in 2017. Just about all of the information in this thread is outdated and wrong for a 2022 tax return, and newer responses conflict with older, original responses. So what you may believe to be "good information", is in fact, wrong for the 2022 tax filing season.

Please start your own thread with the specifics of "your" situation. If I can't help, I'm sure others will.