All Forum Posts by: Levi Lais

Who said I haven’t talked with my tax accountant?  Where in this post did I lay out my business model or talk about anyone on my team?  This is a very complex situation, and I’m looking to get an opinion from someone who has potentially had similar things happen to them.  Strangers or not - BiggerPockets is a great place to ask these kinds of questions. Please stop trolling my post if you’re not going to be helpful. 

 This is unhelpful.

First, I'll lay out the facts and then I'll follow that with the questions...

The Scenario

1. We purchased a house for $467K as an investment property in January, 2022 (the 3rd in our portfolio and in no way would be confused with a primary residence). The land value according to the assessor was $197,500 at the time of purchase. Our plan is to convert a SFA into a "Monster House" - convert the basement and the detached garage into an attached and a detached ADU.
2. We Invested approx. $20K into capital improvements. (about $5K of that going to the detached garage a basement - including permits)
3. Then the house burns down in February 2022 (not touching the garage, so we can keep working on the garage).  The adjusters and investigators do their thing and the max insurance payout of $665K to fully rebuild (all but 1 wall) is expected to be hit.
4. The house projects to finish being rebuilt in May, 2023 (this is when it's projected to be done)
5. Note that no renters have occupied the house as we were about 2 weeks away from posting it.  Thus, no "lost rent" payouts have been made and no "in service" timelines have been hit.
6. The detached ADU will likely incur an additional $100K and be completed this fall
7. The attached ADU will likely incur an additional $50K and will now be completed in early 2024.
8. As a bit of a summary - I have figured a pre-fire basis of approx. $249.5K, $15K of that was lost to the fire, the home was replaced by a $665K rebuild* paid for by insurance, and $150K or so in additional investments that pre-date and will post-date the fire will go towards the 2 ADUs.

My Questions

1. How is basis/depreciation handled in this scenario?  Does the amount that the insurance company is paying to rebuild* the house count towards the basis?  
2. Do we have to pay taxes on the insurance payout?
3. What's th best practice for writing off larger ADU-type capital expenses?  Do we wait until the ADU is put into service in order to start the 27.5 year depreciation on those improvements even tho they partially pre-date the fire?
4. Can we (and if so, how can we) write off the $30K+ that we've burned in carrying costs on mortgage/HELOC taxes/interest

So we purchased a house in 2020, invested about $35K into a rehab, started renting it out in January, 2021 with a basis of $137,870.  This July of 2022 (18 months later) we invested another $40K or so into capital improvements.  As far as depreciation goes, does the $40K 1) have its own timeline that depends on what was done?, 2) get added to the basis and essentially only have 26 years of depreciation (27.5 - 1.5 years), 3) go onto its own, separate 27.5 year timeline, or 4) something different and if so what?

I purchased a home in 2020 when Portland Maps says the land value was $282,500.  We lived in it for about 20 months and then started renting it out in 2022 - current assessed land value is $327,500.  As I prepare for taxes, I'm trying to figure out which to use.  The land value has shot up $45K in 2 years so it's a relatively decent chunk of depreciation that I'd be missing out on if I went with the current assessed land value.