How to report rental property water damage damage repairs and insurance reimbursement

[fxprogljr]

a broken pipe in a rental property caused damage to the floors.   I reported the loss to my insurance company.  They sent an appraiser and issued a check.  I also had a contractor replace the floors.  Where and how do I report the income from the insurance company and where and how should I show the repair work?

[Kat]

As long as your insurance check covered the complete cost of the repair, you won't need to report this at all.  Only if you had extra expense after using the insurance check would you report the DIFFERENCE (your actual out-of-pocket cost) as a repair expense.

[Steve371]

Kat is half right.  Accounting-wise, the insurance check should offset the expense.  If the insurance check exceeds the expense, as in you found someone to do the job cheaper than the insurance estimate, the balance is income.  And if the repaired asset is in a better or improved condition that the original condition, you should adjust the depreciation schedule, not something the average TurboTax user can do.

If I were preparing financial statements, I might show the full expense and the insurance reimbursement.

Theoretically, if the value of the asset repaired is less after the repair you have a casualty loss, but casualty losses are a bit tricky.

[fxprogljr]

thanks much for your input.....the damage was to rugs throughout.  I will be replacing them with something better (vinyl plank flooring).  The insurance check(s) - will not cover the new installation costs.  Can I just report the insurance payments as income and the cost of the new floor as a new asset to depreciate?

[Steve371 · Accepted solution]

Your is a different situation.

Rugs versus carpeting makes for a different answer.

If we are talking about area rugs, and they weren't fully expensed, you write the balance of the expense or show it completely depreciated and offset (with a negative expense) the replacement flooring with the insurance reimbursement.

If we are talking about wall-to-wall carpeting,  you charge off the balance of  depreciation that is left, and depreciate the cost of the new flooring adjusted by the insurance payment.

If you report the insurance payment as income and depreciate the full expense you are paying taxes up front on the insurance payment(s) and recouping it over 27.5 years.  I learned in finance class that a buck tomorrow is worth less than a buck today, that is why we have interest.  Where there is no difference is if you are able to Section 179 the expense (write off the entire expense immediately).

[fxprogljr]

Steve.....now that make a lot of sense and I hadn't thought about it that way...thanks much