How does my insurance claims impact my taxes?

Question

Two of my rental properties received hail and wind damage during the summer.  I need help answering an insurance/tax question for which I am getting varied responses from the ‘experts’.  Both rental properties had a claim filed against them and received payout.

Property 1:  Claim for $21,000 was paid out to fix/replace roof, guttering and siding.  Roof and guttering were replaced for a total of $9,000.  Siding will not be replaced until early spring due to back up of contractors and winter right around the corner.

Property 2:  Claim for $5,000 was paid out to fix/replace roof and guttering.  Roof and guttering were replaced for $4500.  The amount was $500 less than the amount provided partly due to the fact I helped with the installation.

Question, how do these two claims impact my taxes for this calendar year?  Thank you in advance!

Linda Weygant · Answer

Generally, insurance payouts reduce the basis in the property while the funds spent to make the repairs either increase the basis or might be able to be expensed all at once, depending on the nature of the repair/replacement and total funds spent per item.

William Haltom · Answer

Property #1 - If you have income that has not yet been paid out in repairs, my guess is they will call it income and taxes would then be owed. You may want to spend those dollars on some other project besides the siding that you were planning to do next year and do that project in this calendar year, or to minimize the income you could buy the siding this year and store it until your contractor is ready.

Property #2 - If your contractor is okay with it, you should swap him a check for a check. You give him a check for $5000 and he hands you a check for $500. He is allowed to pay you up to $600 dollars for your labor without sending you a 1099.

Did I mention I'm not an accountant?  I'm sure you can tell, lol