Today TaxMama hears from Jackie in Virginia who tells us, “We had some water damage on our rental property and the insurance company paid for the repairs. Is the insurance payment for the repairs considered income?”
Aw what a mess. Don’t you just hate that?
OK. Let’s tackle this. You had to pay to repair the damage replace floors and carpets, etc. on your rental property.
Report the casualty on Form 4684 – Casualty and Theft Losses. (See all the links in the Resource Box below for lots of workbooks and information.)
Use the second page, Part B, to report business casualties. You get a better value than on personal casualties.
When you do this, you end up adjusting the tax basis of the building, or its components, instead of picking the insurance reimbursement up right now.
You’ll need four pieces of information:
·The cost of the repairs, (easy – just find the receipts)
·The insurance reimbursement (easy – you got a check)
·The value of the building or damaged property before the casualty took place (sometimes this is tough to prove)
·The value of the building or damaged property after the casualty took place (easy – usually -0-)
I hope this helps.
And remember, you can find answers to all kinds of questions about dealing with casualty losses and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- IRS Topic 515 :: Casualty, Disaster, and Theft Losses
- IRS Publication 547 :: Casualties, Disasters, and Thefts
- IRS Publication 584 :: Casualty, Disaster, and Theft Loss Workbook
- IRS Publication 584-B :: Business Casualty, Disaster, and Theft Loss Workbook
- IRS Form 4684 :: Casualties and Thefts