Home sinking. Required piers cost $160000. Partial settlement. How do I handle this

[degnaw]

Home settling. Requires piers. Builders insurance company has partial settlement

[xmasbaby0]

Sorry----that is not anything you enter on your tax return.  That is your own issue to resolve with the builder or insurance.

[phildonnia]

Consult a qualified tax professional.

However, I believe that:

• If you perform the improvements, any difference in the amount you pay and the amount of the settlement would be added to your cost basis in the property.  
• If you do not perform the improvements, any settlement you receive would be subtracted from the cost basis in the property.

In either case, this shouldn't affect your taxes this year.  However, you'll want to keep records of everything, as it may affect the taxes due when the property is sold one day.

Again, consult a tax professional for reliable advice.  These are large amounts of money you're talking about, and you shouldn't trust it to the internet.

[Carl]

If a partial settlement is the first offer from the insurance company, decline it and demand more. You should never take the first offer from an insurance company on matters like this. Since the insurance company has no contract with *YOU*, you're not bound by any agreement terms between them and the builder. In the end, what insurance does not pay, you can (and should) sue the builder for. Seek legal advice on that from a legal professional though, as that's just my opinion.

As far as taxes go, this has nothing to do with taxes. The cost of fixing this will add to your cost basis in the property. But that won't matter tax-wise until the tax year you actually sell or otherwise dispose of the property.

[Hal_Al]

There is nothing to enter on your tax forms.  It's unlikely this would qualify as a "casualty loss".  But that issue is irrelevant, as the casualty loss deduction was eliminated starting in 2018. 

Your add your out of pocket cost  (total cost minus what insurance paid) to your cost basis, for when the property is sold in the future.

[Opus 17]

There is a potential tax issue.

You may receive a 1099 form from the builder if they paid you a partial settlement for the cost of repairing the problem. This is not taxable income (unless the payment was more than the amount of the loss), but it may trigger the IRS to send you a letter requesting an explanation.

if you received a 1099 form there are two ways to handle it.

1. enter it on your tax return as miscellaneous income. Then, go to the “other uncommon income“ section and create another item of miscellaneous income with a negative dollar amount offsetting the 1099. Give it a reason like “non-taxable property value adjustment“.  This way the IRS sees that you have reported the 1099 and they will see the reason why you did not consider it to be taxable. However, they may still send you a letter asking for more details.

2. or, leave the 1099 off of your return entirely. Print your return and file by mail instead of e-filing. Attach a copy of the 1099 and a brief letter of explanation. Don’t send additional proof of the damage, but keep records for as long as you on the home +3 years after you sell.

In either case, the amount that you pay to improve your property is added to your cost basis and may reduce your capital gains when you sell in the future, but it’s not deductible today. If part of the loss was compensated by a non-taxable settlement, you don’t include that part of the cost of repairs in your cost basis.  In other words, if the cost of repairs was $160,000 and you received a $50,000 settlement from the builder, you would include $110,000 as an adjustment to your cost basis.