Segregating and disposing of partially replaced rental asset.

[VDR]

The kitchen in my rental apartment has been destroyed by tenants.  I have rebuilt it anew.  Now I want to add the newly rebuilt kitchen as a separate asset item, segregate the old, destroyed kitchen from the asset and remove it from the depreciation schedule, since it no longer exists.   My main objective is to get rid of the portion of the recaptured depreciation attributable to the destroyed kitchen.  How do I do it?  For the illustration, my (rounded for simplicity) numbers are as follows:

Original cost basis of asset, including lost kitchen: $300K; $200K is depreciable, $100K - land

Depreciation taken to date:  $40K

Original cost of the kitchen part of the asset (already estimated) $20K

Depreciation attributable to the original kitchen: $4K

Cost of newly rebuilt kitchen, net of insurance proceeds: $10K

What I am hoping to get is three entries in the depreciation report:

Main asset without old kitchen: $180K depreciable, $100K land, depr. to date: $36K, original date in service.

Old kitchen: $20K, depreciation taken to date: $4K; original date in service.

New kitchen: $10K, depreciation to date: $0, date in service - this year.

And then I would remove the old, destroyed kitchen as a casualty, taken loss on it, but without having to recapture depreciation.  Would it work and how to enter this into TT Premier?

[Anonymous_]

There is no casualty loss in this instance.

Assuming the kitchen that was ruined by tenants was part of the total purchase price of the unit, you simply continue to take depreciation deductions on the original cost basis and then add the remodeling cost (rebuilt kitchen) as a separate asset for depreciation. 

[Mike9241]

did you have insurance and if so did you put in a claim?

[VDR]

Thanks for the reply!

Could you please explain why there was no casualty loss?  The kitchen was vandalized and destroyed by the ex-tenant.  It was no longer there and made the apartment unusable.  On top of it, there was insurance payment involved (I just realized it creates a whole new level of complexity), there will likely be tax forms from insurance company, which would force me go into casualty losses area one way or the other.

As for segregating the asset, I am referring to something like this:

https://www.thebalancemoney.com/partial-dispositions-3192873

I've done the calculations for the basis and adjusted basis of the replaced kitchen and the rest of the apartment.  But what is the intelligent way to replace the original asset with two in TurboTax?  So far, I manged to delete the original asset entry manually and put in two new entries, also manually.  And then put the cost of new kitchen as a separate asset item.  Is that the right thing to do?

Thanks!

[VDR]

Yes. I received insurance payment, and I just realized that it created the whole new tax reporting complexity. Maybe it even warrants a separate post, but in nutshell, here is what I have (all numbers are rounded for simplicity):

I received $30K in insurance proceeds.  Since IRS requires estimating fair market value of the lost property, I estimate the old kitchen to have basis of $25K and depreciation prior to the loss - $4K. This looks like $9K casualty gain? Where and how does it have to be reported in TT, if any?

On the other hand, I spent $40K to put together a new kitchen.  Do I add it to my assets with the basis of $40K?

What should generally be my entries, especially changes to the assets and their basis?  This would have a great impact on capital gains.

[micwebnet]

I'm yet to find anyone showing how to do partial asset disposition in TurboTax. The common reply seems to not understand the concept of asset segregation and its partial disposition. Possible that TT just isn't smart enough.