Rental Property: Roof Insurance claim spanning 2023 and 2024

[Anonymous]

I had hail damage to my rental property in 2023 and the claim was approved.  The insurance company cut me a check for the repair costs (minus deductible) in 2023.  I paid the roofing contractor $1,500 in 2023, but they started and finished the work in 2024 and I'll pay the final invoice soon.  How should I report the $1,500 payment and deductible in 2023?

[DianeW777 · Accepted solution]

It depends.  Since the insurance company paid for the restoration of the rental home, there would be nothing to report except the additional expense you had that came out of your pocket.

The rental property would continue to keep being depreciated and retain the same cost basis as if the damage had not occurred.  This eliminates the need for any taxable income from the insurance company. Instead, you will pay tax on a gain in the future when and if it is sold.

• A gain or loss from a casualty or theft of property used in a passive activity isn't taken into account in determining the loss from a passive activity unless losses similar in cause and severity recur regularly in the activity. See Form 8582, Passive Activity Loss Limitations, and its instructions for details.  - Casualty and Thefts- Passive Activities

[Anonymous]

You’re fast and a big help, thanks!