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Ask Brian Michels Your Own Question
Brian Michels
Brian Michels, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 157
Experience:  Partner at Michels & Hanley CPAs, LLP
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Our rent house burned down, our insurance paid us 162,000.00

Customer Question

Our rent house burned down, our insurance paid us 162,000.00 but we ended paying about 26,000.00 more out of our pocket. We had to demolish and clear the old for the new house and it cost more then we got from insurance. So why would we have to pay on the equity. It wasn't a profit. Can you help?
JA: The Accountant will know how to help. Is there anything else important you think the Accountant should know?
Customer: Plus we had losses like the water sprinkler we had that it's like 7000.00 to replace. So is that a loss or not since the insurance paid us even if it doesn't cover all the losses. Plus the rent we lost while having it build. Things like that. I think out tax guy didn't know how to do any of this stuff
Submitted: 2 months ago.
Category: Tax
Customer: replied 2 months ago.
We ended up moving in it. So not selling it. We didn't have a homestead because we had just bought another house and moved in. So we hadn't had to time to do so.
Customer: replied 2 months ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Expert:  Brian Michels replied 2 months ago.
Was the property included on schedule e of your personal return? Did you rent it and take depreciation on the home?
Customer: replied 2 months ago.
Expert:  Brian Michels replied 2 months ago.

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!

Expert:  Brian Michels replied 2 months ago.

I wanted to follow up and see if you had any further questions.