Out of pocket payments for insurance claims

[tolga]

Hi,

We rent out a condo unit we own. In late Dec 2022, we experienced water damage in the unit and filed an insurance claim. In 2023, repairs a done, insurance paid for the repairs and we paid the insurance deductible out of pocket. We also paid out of pocket for some plumbing and new appliances that were not covered by insurance, during the repairs. My questions are:

1) How do I report the out-of-pocket deductible payment in tax return?

2) Do I amend 2022 tax return or can I report it in 2023 tax return?

3) Although tied to the incident, plumbing and new appliance expenses are improvements to home outside of the insurance claim. Do I report them in 2023?

[DaveF1006 · Accepted solution]

You may report this in 2023 since all monetary transactions happened in 2023.  You would report the repairs expense for the money you paid out of pocket.  You would not report the insurance deductible requirement because it is absorbed by the amounts you paid vs the amounts the insurance company paid. 

As far as the new appliances and plumbing fixtures, you can either add this to the basis of your rental property or set each one up on its own depreciation schedule in the Assets / Depreciation Schedule in the rental summary. 

if you decide to set each one up on its own schedule, the appliance should be set up on a 5-yr schedule and the plumbing is set up at 27.5 years since it is a permanent fixture with the house.

You would not amend your 2022 return. 

[tolga]

Thank you for your reply. Just for clarification, my understanding is:

• "You would report the repairs expense for the money you paid out of pocket." means I enter the out of pocket insurance deductible payment as repair expense (indeed, it is paid to the contractor).
• "You would not report the insurance deductible requirement because it is absorbed by the amounts you paid vs the amounts the insurance company paid" means there is no other special reporting for insurance deductible.

Also, TurboTax asks about "De Minimis Safe Harbor" choice. Therefore, can the appliance cost (< $2500) be expended rather than depreciated, too?

Thank you

[RobertB4444]

You are correct about your interpretation of how to enter the insurance deductible.  And you can take advantage of the de minimus safe harbor rules.

@tolga