1031 Exchange, Improvement Exchange

[Corbin S.]

I'm new to this forum and appreciate your help.  I have a second home we have owned since the mid 80's.  I have two questions on a possible sale trying to avoid as much income tax as we can.  

1.  We had a fire at the house and have put $60K of our own money and $165K of insurance money into the home to repair it.  When we sell the property, does the insurance money that was used to improve the home count towards our cost bases to limit our taxes?  I'm assuming no but need to ask.

2.  We have purchased a vacant lot and plan to build a replacement second home after we sell this one.  Can we do a 1031 exchange and use that money to construct our new home?  I've heard about an "improvement Exchange" to construct a replacement property but I don't know how it works.

Thank you for your help.