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June 4, 2019
Question

My rental house was destroyed by fire but I rebuilt and then sold it. How and where do I enter all the expenses as well as the insurance reimbursements?

  • June 4, 2019
  • 20 replies
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20 replies

June 4, 2019
I received 6 months rental reimbursement from the insurance but no- the house was not rented after the rebuild
Carl11_2
Employee
June 4, 2019
Did you rent out the property at all, after it was rebuilt?
Carl11_2
Employee
June 4, 2019
You need to look in the Assets/Depreciation section to get the total amount of depreciation taken on the property.
Basically, you're going to delete the rental property asset listed, and replace it with a new listing.
Your "cost" of this asset will be as follows:
What you paid for the rebuid, and DO include in that amount what the insurance company paid, plus the cost of the land that you originally had allocated to the land portion in the original asset listing, plus the amount of depreciation taken on the structure prior to the fire.
So for the total amount you will enter in the COST box, it's
 What you paid for the rebuild
    PLUS
 What you allocated as value to the land on the original asset entry for the rental property
    PLUS
 The amount of depreciation taken on the property prior to the fire.
Let's use some actual numbers here.
Originally paid $100,000 for the property. When I entered it into TurboTax in the COST box I entered $100,000. Then in the COST OF LAND box, $30K of that $100K was for the land. So I entered $30K in the COST OF LAND box. The program does the math and deprecated $70 for the structure over 27.5 years.
Now I'm 10 years in and the house burns to the ground. Total loss. At this point, I have taken a total of $25,500 in depreication on the house over the last 10 years.
 Cost to rebuild was $150K. So I select the "Add an Asset" button in the program. I'll probably enter "new construction" or something like that for the description. Then for the cost box here's the math.
What I paid for the rebuild -------------------------------$150,000
Amount allocated to land ORIGINALLY -------------- $30,000
Amount of depreciation already taken prior to fire- $25,500
TOTAL -------------------------------------------------------$205,500  (This is the amount to be entered in the COST box)
For COST OF LAND box, you take the original cost for that and add the depreciation already taken to it. So using my numbers above the COST OF LAND box will have $55,500 entered in it.
Now, depreciation will start anew and it's gets depreciated over 27.5 years starting from the "in service" date you will enter (discussed below).
Now here's the tricky part. I'm assuming this rebuild was completed in 2017. If so, then this isn't so "tricky" really. You know that part of your insurance payout that was for "lost rent"? Well guess what? It's taxable income to you. You have to report it and pay taxes on it.
Make the "in service" date for the property, the day the CO (certificate of occupancy) was issued. Then when you get to it, enter the rental income received from the insurance company and press on.
For the original asset (the one that burned down) you need to delete it from the Assets/Deprecation section. All required information from that old asset has been transferred and accounted for in the new asset for this property.
Finally, finish working through the rental property "as if" you did not sell it. Once it all works out, let me know and I can provide you the details (which are easy in comparison to the above) necessary for you to report the sale of this property.
July 11, 2023

This is excellent information! I'm in a similar situation and I want to sell the rental property after it is rebuilt. Can you walk us through on reporting the sale of the property, and if possible, how the taxes are calculated.

I appreciate your insights.

Carl11_2
Employee
July 11, 2023

@Honeybunch119 you have posted as an "add-on" to a thread that was originally started back in 2017. Just about all of the information in this thread is outdated and wrong for a 2022 tax return, and newer responses conflict with older, original responses. So what you may believe to be "good information", is in fact, wrong for the 2022 tax filing season.

Please start your own thread with the specifics of "your" situation. If I can't help, I'm sure others will.

 

June 4, 2019
Great feedback. Thank you very much.
Carl11_2
Employee
June 4, 2019
Basically what's happening here, is that you have to account for the depreication already taken on the property prior to the fire. When you sell, all depreciation has to be recaptured and you pay taxes on that recaptured depreciation in the year you sell the property. So in order to account for that depreciation in 2017 without you having to recapture it ant pay taxes on it in 2017, you add that depreciation to the cost of the land. As you know, land is depreciable. So by doing this you "account" for that depreciation, and you won't pay taxes on it until the year you sell the property. Since you sold it in 2017, this all "works out in the wash" for you just perfect.
After doing all the above, the answer box below is how you will report the sale. You'll just work through the Rental & Royalty Income (SCH E) section again and use the guidance below to report the sale. Piece 'o cake!
June 4, 2019
Thank you very much. That makes perfect sense.
June 4, 2019
Carl- checking my 2015 return and there is no breakdown for the depreciation of the land and the house itself. Both values are lumped together apparently.
Carl11_2
Employee
June 4, 2019
The only way there's no breakdown, is if you entered nothing, or a zero for the value of the land. Why are you looking at the 2015 return anyway? That will not give you the figures you need. In what year did the house burn? In what year were you issued the CO after the rebuild? I'm concerned, because there may be some assumptions I'm making that may be wrong.
June 4, 2019
I got the house via a quitclaim on a landcontact to my brother in 2006. It's a piece of crap 400 sq ft house so maybe there was neve a value associated with the structure? It burned Dec 24th 2015 and I decided to demolish the structure in Feb 2017 and rebuild. I got the occupancy permit in August 2017 and sold the new house in October 2017
Carl11_2
Employee
June 4, 2019
Ah okay. So I was making some incorrect assumptions. The 2015 return is the one you want. On that return for 2015, did you show you converted the property from rental to personal use? Hopefully you did, so that depreciation stopped.
Am I correct in assuming you did not report anything concerning this property on your 2016 return?