Residential Property Loss
Client has 5 Residential rental properties in LLC. So form 8825 (rental form) has been filed for a few years now for each property.
On Oct 1st, 2020 one of the rental properties (Lets call XYZ) destroyed in fire. It was total destruction. Property Detail as follow:
Cost $425,000
Less Depre. $25,000
Net Book Value: $400,000
Client received $600,000 in insurance reimbursement. Check was made out to Client and bank together. Client never cashed the check. Bank is the one who kept money.
The Client decided to rebuild the property XYZ. Contractor is getting paid by the bank as needed.
Questions/Notes/Considerations/my research:
(1) Do I need to file form 4684 as the client is rebuilding the property destroyed in fire?
(2) IRS gives you two years to rebuild the destroyed property
(3) There should not be any gain or loss on property destroyed. Use 1031 strategy?
(4) Can I leave $400,000 on book as an asset and stop depreciation as of 10/01/2020
Then when property is rebuilt in 2020, start depreciating again as follow
Cost of new building is $600,000
Depreciate $400,000 for the remaining terms of 27 and 1/2 year
Depreciate $200,000 for 27 and 1/2 year
(5) Do not report gain but attach a statement with return that property will be replaced with insurance proceeds. There for gain has been postponed.
(6) We use proseries software for tax return preparation. Trying to figure out how to stop depreciation in software (May be just put disposition date in asset entry area)
Thanks!
On Oct 1st, 2020 one of the rental properties (Lets call XYZ) destroyed in fire. It was total destruction. Property Detail as follow:
Cost $425,000
Less Depre. $25,000
Net Book Value: $400,000
Client received $600,000 in insurance reimbursement. Check was made out to Client and bank together. Client never cashed the check. Bank is the one who kept money.
The Client decided to rebuild the property XYZ. Contractor is getting paid by the bank as needed.
Questions/Notes/Considerations/my research:
(1) Do I need to file form 4684 as the client is rebuilding the property destroyed in fire?
(2) IRS gives you two years to rebuild the destroyed property
(3) There should not be any gain or loss on property destroyed. Use 1031 strategy?
(4) Can I leave $400,000 on book as an asset and stop depreciation as of 10/01/2020
Then when property is rebuilt in 2020, start depreciating again as follow
Cost of new building is $600,000
Depreciate $400,000 for the remaining terms of 27 and 1/2 year
Depreciate $200,000 for 27 and 1/2 year
(5) Do not report gain but attach a statement with return that property will be replaced with insurance proceeds. There for gain has been postponed.
(6) We use proseries software for tax return preparation. Trying to figure out how to stop depreciation in software (May be just put disposition date in asset entry area)
Thanks!