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Sewer Disaster - Insurance Claim and Damage Expenses

Hello,

 

The City flooded part of my basement rental unit with sewage in 2019. Their insurance agent cut me a check. I am unsure how to account for my expenses and claim proceeds.

 

ItemInsurance PaidActual Cost
Lost Rent$2367$2499
Releasing$1200Unsure How To Calculate Cost Of My Time/Effort
Asbestos Test$1500$1500
Asbestos Abatement$1052$1052
Cleaning & Demo$4005$4005
Reconstruction$5128$5325

 

I appreciate any advice that you could share!

1 Best answer

Accepted Solutions

Sewer Disaster - Insurance Claim and Damage Expenses

The total paid by the insurance company is income on the Sch E and the costs to repair the damage is deducted as expenses on the Sch E ... it is just that simple. 

View solution in original post

3 Replies

Sewer Disaster - Insurance Claim and Damage Expenses

The cost for your own labor is never deductible or entered as an expense on a rental property.

Sewer Disaster - Insurance Claim and Damage Expenses

The total paid by the insurance company is income on the Sch E and the costs to repair the damage is deducted as expenses on the Sch E ... it is just that simple. 

Carl
Level 15

Sewer Disaster - Insurance Claim and Damage Expenses

What on earth is "Releasing"???

All income received for a rental from any source for any reason (including an insurance payout) is rental income. Period. So the insurance payout is included with the total rental income received for the year. Since "your" labor can't be taxed, you can't claim it as an expense or deduction of any type.

Your lost rent also can't be taxed, so that too is not deductible. You aren't taxed on income that you did not receive. Therefore you have nothing to deduct on that front. But I do see that the insurance paid you for what looks to be a month or two of lost rent. It's common for a rental dwelling insurance policy to pay up to 85% of lost rent.  For you it appears insurance paid 95% of your lost rents. The 5% difference is "NOT" a deductible expense by any stretch.

Since actual reconstruction was required, and that would without a doubt be classified as a property improvement,  Everything done prior to the actual reconstruction was required to be done before the actual reconstruction could begin. (Asbestos testing/abatement and demo). So it is actually "a part of" the reconstruction. Therefore:

The total cost of $11,882 (last four items on your list) would be entered as a single asset in the Assets/Depreciation section, classified as residential rental real estate with a structure value of $11,882 and lad value of $0, and depreciated over the next 27.5 years. The in service date of this new asset is at least on day "AFTER" the work was completed and could actually be utilized by a tenant.

 

 

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