I have a rental building that was hit by a vehicle. Insurance from vehicle paid for damages. 20k. Expenses to repair were 15k.
How do I handle this on Partnership tax return? Is this a F4684 Business Casualty?
(b) Amount deductible.---(1) General rule.---In the case of any casualty loss whether or not incurred in a trade or business or in any transaction entered into for profit, the amount of loss to be taken into account for purposes of section 165(a) shall be the lesser of either---
(i) The amount which is equal to the fair market value of the property immediately before the casualty reduced by the fair market value of the property immediately after the casualty; or
(ii) The amount of the adjusted basis prescribed in §1.1011-1 for determining the loss from the sale or other disposition of the property involved.
However, if property used in a trade or business or held for the production of income is totally destroyed by casualty, and if the fair market value of such property immediately before the casualty is less than the adjusted basis of such property, the amount of the adjusted basis of such property shall be treated as the amount of the loss for purposes of section 165(a).
dave829 wrote:So, what was the decrease in FMV of the rental building?
Bell wrote:Decrease in FMV is 15k
Insurance reimbursement is 20k
Bell wrote:Decrease in FMV is 15k
Insurance reimbursement is 20k
5k excess
Bell wrote:Fair Market Value before the repair 65k
Fair Market Value after the repair 65k
Bell wrote:Do I have 5k income to add to the net profit?
Bell wrote:Or do I have a basis reduction? If basis reduction, do I just do it on the depreciation worksheet?
(2) Method of valuation.
(i) In determining the amount of loss deductible under this section, the fair market value of the property immediately before and immediately after the casualty shall generally be ascertairk done cheaper. ned by competent appraisal. This appraisal must recognize the effects of any general market decline affecting undamaged as well as damaged property which may occur simultaneously with the casualty, in order that any deduction under this section shall be limited to the actual loss resulting from damage to the property.
(ii) The cost of repairs to the property damaged is acceptable as evidence of the loss of value if the taxpayer shows that (a) the repairs are necessary to restore the property to its condition immediately before the casualty, (b) the amount spent for such repairs is not excessive, (c) the repairs do not care for more than the damage suffered, and (d) the value of the property after the repairs does not as a result of the repairs exceed the value of the property immediately before the casualty.
Nilodop wrote:The amount of repairs is only an indication of the amount of the casualty loss.. See (ii) below.
1.165-7(a)(2) Method of valuation.
(i) In determining the amount of loss deductible under this section, the fair market value of the property immediately before and immediately after the casualty shall generally be ascertairk done cheaper. ned by competent appraisal. This appraisal must recognize the effects of any general market decline affecting undamaged as well as damaged property which may occur simultaneously with the casualty, in order that any deduction under this section shall be limited to the actual loss resulting from damage to the property.
(ii) The cost of repairs to the property damaged is acceptable as evidence of the loss of value if the taxpayer shows that (a) the repairs are necessary to restore the property to its condition immediately before the casualty, (b) the amount spent for such repairs is not excessive, (c) the repairs do not care for more than the damage suffered, and (d) the value of the property after the repairs does not as a result of the repairs exceed the value of the property immediately before the casualty.
Generally, we would expect the repair to bring the FMV back up to where it was prior to the damage. . Or less. Or more. It is not unusual to get an estimate that the ins. co. approves and pays and then to shop and get the workk done cheaper. (Or sometimes not even get the work done at all).You're still left with determining the decrease in FMV for IRS purposes. That's the deduction starting point. The basis is the upper limit of the deduction. But as was said above, here there is no deduction because the reduced value was reimbursed and then some.
The better question to ask is this: Is the building any different in value before the repair than after the repair?
My presumption would be no.
That would be relevant to complying with (a)(2)(ii) above.
mlaubercpa wrote:You have two years to spend the $5K on improvements in order to avoid a taxable gain.
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