Quote from @Brian Dela Cruz: @John ChapmanTypically, 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. 

Reporting the proceeds you pay to seller on a 1099 sounds reasonable.

Not at all bashing REI Nation as I’m very happy with them.

build a multifamily property and continue that strategy. building is a different strategy that allows you to still enter hte market below value. this is what we build in columbus ohio for investors it's a 3 story walk up infill that's about 24x40 and 2 bedrooms 1 bath stacked 3 times. it's identical to like 65% of apartments that are built. you'd need probably 100-150k in proceeds.

You also want to have the key if possible so you can slip the lock open... otherwise they bash down the door.

Currently on market and hoping to get some proceeds to venture into something new in 2025.That's awesome! 

Insurance proceeds are typically provided in a check that must be endorsed by both the policy holder and the mortgage holder. 

(Net sales proceeds after all costs (PS. loan payoffs are considered proceeds.) minus purchase price is your taxable net gain.

@Roger Kim If your friend qualifies for the Section 121 exclusion, he can exclude up to $250K of capital gains, but gifting you the proceeds won’t legally avoid your tax liability.

I used the proceeds to start my business.