How to claim rental property damage on Taxes?

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For Tax year 2009: A rental property sustained severe damage and the insurance company pays only a part of the actual rebuilding costs. Where and how is the remainder being claimed in the Federal tax return? Do I calculate the net-loss and put only that into Schedule E under repairs? or is there a place / form where I list / itemize all Expenses and Insurance reimbursements for transparency? – which will add up to the same net-loss – Thanks!
for Dr.Mojo1’s comment: Could I in this case then not just take the contractor repair invoices that the insurance did not pay and claim them as “Repair and Maintenance”?

1 Comment
  1. Reply
    November 10, 2011 at 8:07 am

    Tricky question with no clear answer.

    Partial losses are harder to claim than a full loss (which is basically a total loss in FMV).

    You’d file a casualty loss (Form 4684) and it essentially goes to the front of Form 1040 not Sch. A for rental property.

    Generally, the loss is the “change in fair value” of the property after reimbursement, if any.

    Most losses isn’t really a loss in FMV but the costs to “repair” the damages sustained by the property.

    For example…
    Water came into basement and flooded basement to first floor.
    Foundation and FMV of building were not affected. Still standing!
    But it did cause you to spend lots of money in repairs to pump out the water, rip the walls, maybe patch up the foundation, rip out any carpeting then comes the replacement of those items!!
    This isn’t really a loss though it does appear like one!!!
    These expenses may be expensed BUT…. make sure you document every one of the repairs properly because if the repairs costs are large, it may be an audit area!

    You should consult a local tax professional to assist you further!

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