Casualty loss on Rental property, how do I deduct remaining amortized closing costs?

[Khuls]

Had a fire in my rental property. 

It was worth 50,000 on books 

Also had 1500 Closing cost that was amortized every year.

It was a total loss, Insurance paid all 50,000. Sold property for the salvage value of 20,000

and paid off the loans. 

Turbotax does not give me an option to deduct all the  Closing costs. 

It tells me to amortize it over 20 years but I do not have the property anymore. 

How do I claim this? 

Second Question: Turbotax took 50,000 Loss and its creative huge Loss on the tax return. 

How about the Insurance claim of 50,000? 

Do I add it to the next income? 

Thanks 

[pk · Accepted solution]

@Khuls ,  You really have two different transactions/tax events here --- (a)  Casualty loss, the tax treatment of which is  1. Loss   = FMV prior to casualty LESS  FMV  immediately after loss .  Depreciable  Gain in Asset Value = Cost of remediation   LESS Insurance settlement  LESS FMV prior to casualty loss.  Generally  people will do remediation only to   old  FMV --- remediation/repairs etc beyond that  is gain in asset value.  Thus you handle the Insurance settlement  in the Casualty loss  --- if all the insurance settlement just brought your property to old FMV then there is nothing to report.  If you did not do any remediation but received the insurance  monies  less deductible then it is assumed that the  insurance settlement  has made you whole and the only loss you would then have is the deductible for the insurance settlement.  2. Sale of the property  -- this is where you essentially use your book value  ( i.e. Acquisition Basis + Cost of  improvements   LESS accumulated  depreciation allowed or allowable )  and the sales price  to compute gain / loss .  Note that  un-amortized amounts are released and recognized at disposition,  -- in a round about way.  It shows on Schedule-E  and creates a suspended loss that has to accounted for on 4797 for the sale of the property.   If you are uncomfortable with this complication, it may be worthwhile to seek professional help.  There is no way back since this is the final settlement of this asset.

Hope this helps 

@Carl  may be able to provide more clarifications on this 

[Carl]

Since you did not use the insurance payout to restore the property, but instead pocketed it, you really don't have a loss here per-se. You have a sale. You sold the property for $70,000 and should be reported as a sale to keep things simple.

How about the Insurance claim of 50,000?

That's basically reportable, and potentially taxable passive income.

Since insurance does not insure land, you sold the structure to the insurance company for $50K and you sold the land for $20K for a total sale price of $70K. Just report this as a sale for $70K. Any gain/loss on the sale will be dealt with by the program "for you" with this scenario, and all other things (such as remaining amortized costs) will be taken into account. The below assumes both the insurance payout and the land sale occurred in the same tax year.

Reporting the Sale of Rental Property

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 have a selection on it for "I sold or otherwise disposed of this property in  2019". Select it. After you select the "I sold or otherwise disposed of this property in 2019" 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 its 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 your 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 2019" 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.

[Khuls]

Thank you. 

I appreciate that you took the time to answer my question and in so much detail. 

I just did what you said and it makes sense. I am using the Turbotax business so sale steps were different but on the forms, it all makes sense now. 

Still was not able to claim the remaining amortized costs, Turbotax says cannot enter a number on how much I disposed of this asset for as it's not 1245 property and is intangible. And since I can't enter a number it's just disposed of without a gain or loss. I think I am okay with that, its not a large amount of tax saving even if I was able to claim it. 

[Khuls]

Thanks