I have a client with a fully depreciated rental property, 2 houses one defunct and not in use, the other rented. (Fully depreciated: owned for 40 years)
The rented house burned down in 2017, loss assessed at $400,000. We completed the 2017 return, estimating $400,00 insurance settlement, and planning on a like kind exchange to avoid recognizing gain.
In 2018, total insurance settlement was $440,000.
There was a second mortgage on the property of $250,000 which the bank required to be paid off in order to release the rest of the insurance proceeds. This left insufficient funds for like - kind.
Taxpayer decided to take remaining $150,000 to fix the defunct house, which is now the rental.
So, my questions:
1) Do I amend 2017 for the extra settlement amount and incompletion of like kind?
2) While I know I do not have to recognize the $150K repair cost, I am not clear if the amount spent to repay the mortgage counts for non-recognition.
Thank you for your help
The rented house burned down in 2017, loss assessed at $400,000. We completed the 2017 return, estimating $400,00 insurance settlement, and planning on a like kind exchange to avoid recognizing gain.
In 2018, total insurance settlement was $440,000.
There was a second mortgage on the property of $250,000 which the bank required to be paid off in order to release the rest of the insurance proceeds. This left insufficient funds for like - kind.
Taxpayer decided to take remaining $150,000 to fix the defunct house, which is now the rental.
So, my questions:
1) Do I amend 2017 for the extra settlement amount and incompletion of like kind?
2) While I know I do not have to recognize the $150K repair cost, I am not clear if the amount spent to repay the mortgage counts for non-recognition.
Thank you for your help