The damage to my rental was a combination of vandalism and deteration,
Can you be more specific? What are you calling vandalism? Did someone spray paint vulgar language on the front door. Maybe someone threw a rock through a window is all? Maybe they beat down the front door then went in and stole all the appliances? You need to *be* *specific*. There is a vast difference between vandalism and theft.
I was only compensated partialy for the vandalism and theft and a portion of repair costs.
The above statement is why you need to be more explicit, so I can provide you feedback that is actually useful to you. There are definable differences between "repairs", "maintenance", "theft" and a few other terms. Generally, insurance doesn't pay maintenance costs. On what insurance does cover, it never covers 100% because you have a deductible.
How do I handle this on my Rental Income?
That depends on the details so I can know "WHAT" needs to be handled.
Was the property under lease to a paying renter at the time?
Was the property vacant?
What exactly was stolen, damaged, defaced or otherwise rendered unusable until you restored it back to it's original condition?
Did you "in fact" do whatever was necessary to at least restore the property back to the way it was before the incident occurred resulting in an insurance claim?
Did you also do more than what was covered by insurance?
The below definitions will help you see why this matters (I hope). Then once I have more details I can assist with the insurance payout as well as costs incurred because of this. I will also need to know what each thing costs you to repair/fix/replace/restore/whatever so that we classify it correctly on the SCH E.
RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED
Property Improvement.
Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.
To be classified as a property improvement, two criteria must be met:
1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.
2) The improvement must add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.
Cleaning & Maintenance
Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.
Repair
Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.
Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.
However, when you do something like convert the garage into a 3rd bedroom for example, making a 2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.
