Reporting loss from a rental property fire and the insurance proceeds

[John Chapman]

I had a rental house that burned down.  I have owned it for a very long time and had depreciated most of the original purchase price.  I had replacement coverage insurance and received about 300K to restore the house.  Since my adjusted basis is about 50K, am I going to have a $250K gain on my income taxes this year? Is there anything I can do to reduce the gain?

[Michael Plaks]

Quote from @John Chapman:

I had a rental house that burned down.  I have owned it for a very long time and had depreciated most of the original purchase price.  I had replacement coverage insurance and received about 300K to restore the house.  Since my adjusted basis is about 50K, am I going to have a $250K gain on my income taxes this year? Is there anything I can do to reduce the gain?

Sorry about your  and your tenants' ordeal. Most of the responses show lack of understanding of how it works. It's way more complex than saying "not taxable." And it depends on what you do next - rebuild or sell as is or some other plan. 

If you spend the entire $300k restoring the property, then here is the end result:
- deductible casualty loss of $50k
- no current tax
- the restored property has $0 basis and cannot be depreciated
- when it is later sold, the entire sale price is taxable

Mechanics and reporting are tricky, and I would not recommend to DIY it, especially since my scenario is over-simplified, and your real scenario is likely to involve more gotchas.