I have a rental property and insurance covered replacing my roof minus the deductible. What do I include on my property assets depreciation section?

Forum|Forum|6 years ago
June 6, 2019
2 replies
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Do I include the value of the insurance deductible I paid, or do I include the value of the entire roof, regardless of who paid (me or insurance)?

TurboTax Premier Online

PatriciaV

Employee

A new roof is considered an capital improvement that increases the basis of your rental property. You would create a new asset for the replacement roof with a cost equal to the difference between the total cost and the amount of the insurance reimbursement, probably your deductible.

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TXAM

Similar situation here (tax year 2021). However, the deductible for the new roof (my total out-of-pocket) was under $2,500.
The screens for depreciation indicate I am required to list it as an expense, but the Help screen on the Miscellaneous Expense screen says, "Improvements to your property must be depreciated once it is made available for rent."
Which is it? If I'm in the wrong section, please point me to the correct one.
Thanks for clarifying!

Carl11_2

Employee

Typically, when you lose an asset such as in a hurricane, fire or other disaster and the insurance pays out, you simply report the "sale" of that asset to the insurance company for whatever they paid you. Then you enter the new replacement as it's own separate asset with a cost basis of what you actually paid for it. That cost basis would include both the insurance payout, as well as your deductible/out of pocket amount you paid.

However, that's not always possible in the case of losing the roof of a rental property, since the roof itself may not be listed as a separate asset from the structure. Then it's not possible to reduce your cost basis of the asset by the amount of the loss without really messing things up. In that case, you simply add the new roof as a physically separate asset and your cost basis would be your out of pocket costs, not including what the insurance paid out. Now if it costs you less than what insurance paid you, then the difference is taxable rental income and for simplicity, can be included in the rental income. But I don't see that as a possibility in these inflationary times.

Depreciation on the newly entered roof asset would begin once the new roof/property is placed in service. Typically this would be the day the new roof installation was completed, assuming the property remained classified as a rental during the time it took to install the new roof.

phantomjock

My Company's only owned property, an aircraft, was destroyed. The depreciated value of the aircraft was less than the amount paid by insurance. The insurance payment will be used to purchase a replacement when one can be found on the open market. How do I handle this?

KathrynG3

Handle this in two steps.

First, report the disposition of the aircraft. Enter the insurance payment less any deductible as the sales price. TurboTax will calculate the gain/loss on the transaction.

Second, when the replacement is purchased, record your asset at the purchased price and begin depreciation.