How and where do I report water damage on my rental property when the damage occured in the last quarter of one year, and the repair happened the following year?

[DeeSHC]

In November, my rental property had water damage due to freezing pipes. After an insurance adjuster filed his report, I received a claim reimbursement for damages of $9340.00, after the deductible of  $1798.00 and depreciation of $2784.32 was subtracted. I also received $6350.07 for the cost of the Water Mitigation.

Since the water damage occurred at the end of the year, and the reimbursement check was received just before Christmas, the repairs were initiated and completed the following year.

I have no idea how or where to report this. 

Please help.

[Mike9241]

form 4684 instructions answer your question as to when to claim the loss and the form (section B)  needs to be filed to claim your casualty loss. if you have difficulties completing it you may want to consult a tax professional or use Turbotax Live

 (abbreviated from 4684 instructions) 

The loss is not sustained until you know with reasonable certainty whether reimbursement will be received.  You got the check in 2024 so you know for certainty in that year.

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what is the amount of your loss?

This involves knowing the fair market value of the property before and after the loss. 

[DeeSHC]

The reimbursement for the repair is $9340 and the water mitigation check is $6400.  How do I report the mitigation check since it is not used for repairs but to clean and dry up the water? Can I use the basis of the rental property to calculate the before and after valuation?

[PatriciaV · Accepted solution]

The mitigation payment is related to the casualty loss, so you would include that with the reimbursement check.

Your basis in the property is not what you need to calculate the change in market value due to the casualty. Contact a local real estate professional for help determining the before and after market values for the property.

Additional information: IRS Instructions for Form 4684

[DeeSHC]

Thank you!

[DeeSHC]

The water damage occurred at the end of '23 but the repair work was not done until early the following year, '24. I received the check just before Christmas of '23. The mitigation was done right after the damage in '23 but I paid the company in '24. How and in which tax year should I report the mitigation? 

[PatriciaV]

As Mike9241 said previously, 

The loss is not sustained until you know with reasonable certainty whether reimbursement will be received.  You got the check in 2024 so you know for certainty in that year.

In other words, report the casualty loss (including mitigation) on your tax year 2024 return.

[DeeSHC]

Thank you for your reply. Before receiving your response, I called Turbotax to speak with a tax advisor. He told me that I do not have to complete form 4684, Casualty and Theft because my rental is not in a Federal Disaster or a Disaster area designated by the President. Now, I'm confused because I have been requesting information, and spending lots of time completing the necessary documents.

So, if the tax advisor is correct, how do I proceed to report the casualty, or is it necessary to report it?

The tax advisor also asked if I received a 1099 from the insurance company. No, I did not receive a 1099. All the funds were used to mitigate the water damage and restore the damaged property to its original state.

Help, please to get to the bottom of this so I can complete the tax preparation.

Thanks in advance.

[DeeSHC]

In addition to my last question, I want to reiterate that the water damage occurred at the end of '23 but the repair work was not done until early the following year, '24.

I received the reimbursement check just before Christmas of '23. The mitigation was done right after the damage in '23 but I paid the company in '24. I had a check for $9340 for the repairs.  I received a check for the mitigation for $6350.07.  I just want to do this correctly.  I've used TurboTax since 2005 but this is the first time that I have had a situation like this. Thank you so much for your help!

[PatriciaV]

According to the IRS IRS Pub 527 Residential Rental Property - Casualties and Thefts, if you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts.

For tax years 2018 through 2025, a deduction is generally not available for personal casualty losses, unless they are related to a federally declared disaster (per IRS Tax Topic 515). You are reporting a business casualty loss.

Based on the responses to this thread, you have the information you need to report this event on your 2024 tax return.

[uwrgtriangle]

<p>If water damage affected your rental income or required repair costs, you can report it on Schedule E as a rental expense. Keep all receipts and documents. If it’s a large loss, you may need to consider casualty loss reporting too. Consulting a tax professional is a smart move here. </p>

[uwrgtriangle]

You can report water damage to your rental property as a casualty loss on IRS Form 4684 (Section B for property not covered by insurance). Deduct unused repair costs from Schedule E. Keep all receipts and documentation for proof. Consult a tax pro for specific situations that differ.