I bought a house for ~$350k as primary residence first and later in 2015 turned it into rental prop. for 6 yrs. It was burnt down by Marshall Fire in 2021, and now is being rebuilt.
Insurance paid most of it, and I'll be having a ~$300K loan to cover the rebuild cost.
I'm planning to move into the house later this year after the rebuild completes in Oct. likely and turn it into our primary residence.
Questions:
- Are there anything I should do for tax return purpose for the rebuild of this house for year 2025, or any prior years? Loss of the house, rebuild cost gap, etc. Insurance payments don't trigger tax I believe.
- How should I calculate the cost basis if say 5 years later I sell it? I heard it's possible to keep the original purchase price as the cost basis to avoid capital gain tax. If so, what do I have to do to report it?
- Does it make the most sense from avoiding tax perspective to leverage step-up basis, assuming the tax laws don't change on this, for me to keep the house until both my wife and I pass and the children will inherit the house using step-up basis to avoid capital gain tax and ordinary tax on depreciation recapture?
- With Marshall Fire being considered a major disaster and president Biden visited, and FEMA was involved to provide aids, are there any special tax benefits? In our case, we were landlords, not residents of the burnt house though.
