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If the house was used as a residential rental investment the deduction is calculated as follows: Adjusted basis - salvage value - insurance proceeds = deductible loss. Your adjusted basis is the property's original cost, plus any improvements, minus any deductions taken for depreciation or Section 179. The salvage value is the value of whatever remains after the property is destroyed (in your case it would be the value of the land since the house burned down completed). You may take a deduction only to the extent that the loss is not covered by an insurance claim, which in your case sounds like the $26,000 out of pocket. Casualty losses are subject to other limitations however and based on your adjusted gross income you may or may not be able to take the loss. Publication 547 from the IRS has a lot of information relating to casualty losses. My goal is to provide you with excellent service. If you're satisfied with my assistance, your 5-star rating at this time is appreciated. If you have any further questions, don't hesitate to ask!
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