Rental home burned down

[GTS1101]

Hi!

I have a client who owned a rental home that burned down. He is going to rebuild but it may take a couple of years. He is going to build two new homes on the property. My question is what happens with depreciation of the old rental home. Do we continue depreciating and then add the add'l basis from the increase in the new price of the two new homes or do we stop depreciation on the old property and start again when new homes are rebuilt? It wouldn't be a sale so if depreciation is stopped is there any recapture issues? I would think not. Is property considered idle until rebuilt and therefore depreciation continues? Any guidance would be helpful.

Thanks!

GTS1101

[Jiggers]

Any insurance proceeds?

Hi!

I have a client who owned a rental home that burned down. He is going to rebuild but it may take a couple of years. He is going to build two new homes on the property. My question is what happens with depreciation of the old rental home. Do we continue depreciating and then add the add'l basis from the increase in the new price of the two new homes or do we stop depreciation on the old property and start again when new homes are rebuilt? It wouldn't be a sale so if depreciation is stopped is there any recapture issues? I would think not. Is property considered idle until rebuilt and therefore depreciation continues? Any guidance would be helpful.

Thanks!

GTS1101

Any insurance proceeds due to the fire?

[GTS1101]

Insurance Proceeds on Rental burned down

Yes I do believe he received insurance proceeds for the rental home burned down. I am not sure how much but I do know that he did receive insurance proceeds. Does the amount of proceeds make a difference?

Thanks!

GTS1101

[Roland Slugg]

Involuntary conversion

The fire constitutes an involuntary conversion, and the rules for replacement time, insurance recoveries and basis adjustments apply. Depreciation should be suspended during the time the building is out of service, then resumed when placed back in service, if there is any basis left to depreciate. Apply the insurance proceeds first to reduce the basis of the building that burned, and if the insurance proceeds exceed that old basis, offset the excess against the cost of the new construction.

[GTS1101]

Rental Property burnt down

Thank you for your help. It is greatly appreciated!

[TaxLadyinPA]

Must be a year for rentals burning down.

although my client's burnt down 3 weeks ago.

The renter left rags soaked in chemicals laying in the laundry room and the gas pilot from the dryer ignited from the fumes with a boom.

The renter asked my client if he would please return her Security Deposit ... *L*

Yeah right lady... like that is going to happen ... She burns down his house and she wants her security deposit back ...

I do wonder about the legal rights he has to the deposit, but I should think he is entitled to keep it. Fire inspector said her fault, accidental.

My client now has loss of income on the rental so I told him to keep the deposit. If she wants it she can fight in court for it ...

You think he is entitled to it ??

his insurance will cover the loss of the house but not the loss of income.

[David1980]

Depends on the contract with the renter. What does the contract give for reason to keep or return deposit? Does it require there to be loss of value in property or loss of rents, etc...

Assuming contract seems in order and specifies conditions are met for him to keep then it's a law issue. Would be something for lawyers to argue over whether it's valid whether it applies etc..