Insurance claim for hail damage to rental property

Forum|Forum|3 years ago
March 1, 2023
1 reply
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I just want double check if I'm doing this right. In 2022, I filed an insurance claim to replace the roof on a rental property. For illustration purposes, the total replacement cost billed by the roofing contractor was $10K. The insurance paid me $6K and the $4K difference was the deductible I had to pay out of pocket. The roof replacement was completed at the end of July 2022. Do I report the $6K as rental income and then treat the entire $10K as a capital improvement to be depreciated over 27.5 yrs? Thanks!

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Best answer by DaveF1006

No. You will not declare $6K as income but you will depreciate $4K over 27.5 years because that was your actual replacement cost for the roof that you paid out-of-pocket.

DavidD66

No, your cost basis for the new roof is $4,000. If you capitalize it, the amount would be $4,000 and I would depreciate it over 15 years (roofs don't last 27.5 years. Alternatively, you may want to expense the entire $4,000. If all you did was replace the shingles, and not the actual underlying roof, then I would consider it a repair, not a capital improvement.

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dbonsukanAuthor

Hi David,

It was a roof replacement--shingles, underlayment, valley metal, drip edge, flashing, ridge cap, roof vent, and more...

DaveF1006Answer

No. You will not declare $6K as income but you will depreciate $4K over 27.5 years because that was your actual replacement cost for the roof that you paid out-of-pocket.

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