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Background:

Single family residence owned and rented since 1984 with the building fully depreciated.

A break in a toilet supply line resulted in water damage to a bathroom, carpeted hallway and more. Costs for water damage mitigation services were paid to a contractor directly by the insurance company. The bathroom had to be demolished and rebuilt and carpet/pad replaced in hallway and adjacent rooms. I have hired contractors for this work and insurance payments to me will cover costs directly related to the water damage including lost rent.

During this process a leak in the lead toilet sweep was discovered and could not be repaired resulting in a new plumbing stack, toilet flange and toilet (cracked and leaking), at a cost of $2300. No insurance coverage here, just part of the joy of owning an 88 year old house.

Figuring this was a good time to update, we replaced the rotting wood bathroom window with glass blocks, a new vanity and faucet, new tub/shower faucet and all carpeting (4 rooms and hall).

Questions:

1 Is filing Form 4684 Casualties and Thefts required in this case where the cost of restoration and insurance payments should net to zero?

2 Is insurance compensation for lost rents included on Sch E, Line 3 with normal rental income?

3 Can the cost of the new plumbing stack, toilet flange and toilet be included on Sch E Line 14, Repairs?

4 Can the replacement of the rotting window, in the tub/shower area, be included on Line 14, Repairs?

5 Carpet expenses above and beyond insurance coverage will be depreciated. Is the new vanity and faucet (~$150) included here as well?

George
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No. of Recommendations: 3
1 Is filing Form 4684 Casualties and Thefts required in this case where the cost of restoration and insurance payments should net to zero?

Not in my opinion. Others may disagree. And the repairs equaling the insurance reimbursement has nothing to do with my answer. I would simply report the repairs net of any insurance reimbursement.

2 Is insurance compensation for lost rents included on Sch E, Line 3 with normal rental income?

Yes.

3 Can the cost of the new plumbing stack, toilet flange and toilet be included on Sch E Line 14, Repairs?

I would. They are not extending the life of this business asset, they are allowing you to keep the asset in use for it's intended purpose.

4 Can the replacement of the rotting window, in the tub/shower area, be included on Line 14, Repairs?

Again, yes.

5 Carpet expenses above and beyond insurance coverage will be depreciated. Is the new vanity and faucet (~$150) included here as well?

I would include the vanity and faucet in repairs. I suspect they were ruined in the flood - well, at least the vanity. And once the vanity is out, it's silly to put the old faucet back in unless it was nearly new.

For a rental property, carpeting is normally depreciated over 5 years. So that's what I'd do with any amount the insurance did not cover.

--Peter
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Peter, thank you very much for your detailed reply.

George
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