Client has a residential rental building that burned to the ground in 2019. The insurance proceeds received coupled with depreciation taken for years resulted in an ordinary gain. The property is in an undesirable location and in 2020 the client sells the vacant land to the only person interested in it for $2,000. The land had an allocated cost of $12,000.
Had the rental property, including the land, been sold in 2019 for the amount of the insurance proceeds, the inclusion of the land cost would have reduced the ordinary gain. I'm assuming the loss on the sale of the rental property land in 2020 will be ordinary rather than capital gain.
Is that correct?