All Forum Posts by: John Chapman

@John Chapman

Typically, this would be treated as a sale, unless you reinvested the insurance proceeds into another rental property within two years (by either rebuilding or replacing), you can defer the tax under IRC Section 1033. 

The replacement property must be similar in that it is another rental property. If you do not reinvest all the proceeds, any excess amount not reinvested is immediately taxable. If you don't rebuild or replace, the transaction is taxable. Meaning, if you take the money only, you would have depreciation recapture from your cost basis up to the original purchase price of the building (not including the land cost because it wasn't depreciable), plus a capital gain up to the insurance proceeds.

Hope this makes sense. In general, these are the rules. Consult your tax pro for more details or greater clarification, or contact me. I would be happy to help.

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.

Shouldn’t be a gain, but your cost basis will remain the same if only insurance money is spent rebuilding it. 

out of curiosity, have you tried contracting neighboring property management companies or groups in Pullman to see what they can offer that is mutual beneficial to your situation? Highland Property Management, Midway Property Management? DABCO Property Management, Crimson Properties? If so, what's been the good, bad, and ugly from each? All the best.

out of curiosity, have you tried contracting neighboring property management companies or groups in Pullman to see what they can offer that is mutual beneficial to your situation? Highland Property Management, Midway Property Management? DABCO Property Management, Crimson Properties? If so, what's been the good, bad, and ugly from each? All the best.