depreciation recapture

[huckles]

I closed my home child care business two years ago and sold my home at a substantial loss (due to fire) last year.  Do I still need to recapture depreciation from the child care business?

[Mike9241]

what about insurance.? it would be unusual to operate a business like child care without such insurance.

you may want to consult an independent tax pro since you may be entitled to a loss deduction for the business portion of the home. If the loss of the home was due to fire in a federally declared disaster area you should be able to claim a loss on it too. all losses must be reduced by insurance coverage even if you don't make a claim.

[Opus 17]

If you closed the business in (let's say) 2022, then all the tax consequences should have been handled on your 2022 return.  That would include recapturing depreciation on any remaining assets that you sold and taking care of any insurance reimbursement (which might or might not be taxable, depending on the circumstances). There should be nothing further to report on your 2023 return.

[huckles]

Thank so much for the answer.  My business was closed the year before the fire and there was no business asset loss.  Home and contents were covered by insurance.  Do I need to report insurance proceeds as income?

Thank you

[Opus 17 · Accepted solution]

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@huckles wrote:

Thank so much for the answer.  My business was closed the year before the fire and there was no business asset loss.  Home and contents were covered by insurance.  Do I need to report insurance proceeds as income?

Thank you

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OK, so yes, you may have to recapture depreciation on the sale of the house since your adjusted cost basis includes depreciation from business use of the home.  However, that depends on the overall loss or gain.  The settlement may also be partly taxable, depending on the overall loss or gain.

Was this in a declared disaster area and did you claim a casualty loss deduction on a previous tax return, or will you claim a casualty loss this year?