Insurance proceeds as compensation for Rent Loss

[equinecpa]

Client had her personal residence for sale/rent in 2008. Property flooded in Oct. The insurance company paid her for loss of rent 4 months worth in 2008 (Oct, Nov, Dec and Jan 2009). How should this money be treated for her personal taxes? Simply other income or would this be rental income? She never actually rented the house at, and doesn't intend to now. Once the damages are fixed she will sell it.

Carolyn

[erchess]

I don't have a cite

but my first thought would be to treat it as rental income since from the payer's point of view it is replacing rent that the casualty made impossible. Besides that, most clients are fickle and if she gets the right offer she will rent it or put it on a rent to own deal in a heartbeat.

[equinecpa]

I've entered it as other income. I could move it to Schedule E. I don't think I would take any depreciation though as the property was never actually put in use...hmmm income without being in use..how odd.

The 1099-misc from the insurance company listed it as other income not rents but then again it was in "lieu" of rent not actually rent.

[Lion]

Personal Policy?

Was the insurance policy still her personal policy as her residence? If so, perhaps the payments were for temporary loss of use, to enable HER to rent a temporary home. Or, was it a commercial policy for a rental? What does the policy say?

[equinecpa]

Policy was a personal policy. She purchased a new principal residence in July 08 and put this one on the market -for sale/rent. It was never rented. She has a buyer for it now so it will never be rented.

[erchess]

new understanding

In light of the new information since the OP I concur with the Line 21 treatment provided you are not going to claim any expenses.

However when it comes time to report the sale remember that you have to deduct depreciation that was "allowed or allowable". I would like to hear from more knowledgeable people whether you may claim depreciation here since it's important to be sure and claim any that you can even arguably claim. My thinking would be that you can depreciate since the home was on the rental market.

[OtisMozzetti]

available for rent

Policy was a personal policy. She purchased a new principal residence in July 08 and put this one on the market -for sale/rent. It was never rented. She has a buyer for it now so it will never be rented.

I agree with erchess. Depreciation becomes allowable starting when property becomes "available for rent".