Insurance recovery for business theft

[Linda]

Single member LLC files Schedule E Commercial Building Rental. Theft of copper wiring in 2012 $ 52000. Building basis reduced and Form 4684 income producing property theft deducted on Schedule A. No insurance proceeds expected, but in 2013 received Insurance proceeds of $ 52000. Tax benefit rule for income, but after I increase basis, do I put this income on 1040 Line 21 Itemized Deduction recovery or should I put it on Schedule E income? Thanks for your help. Linda

[kcjenkins]

I'd put it on Line 21 because the theft was deducted on the A.

[DANRVAN]

I believe that originally would go on form 4797.

[kcjenkins]

Linda said she reported it on Form 4684 income producing property theft deducted on Schedule A. So in my opinion, she should report the offset based on where the original deduction was taken. Which in this case would be line 21.

[Linda]

Thank you. I agree that it should go onto Line 21 for consistency, but reporting it on Schedule E would save the client almost $ 5000 (due to passive loss limitations) and I just needed some support to enter it onto line 21. Again, thanks.

[DANRVAN]

If it should have been reported on 4797 in 2012 and doing so would save $5,000 this year, then why not amend 2012 and extend 2013?

[kcjenkins]

Frankly, for that big a difference, I agree with Dan. Was not aware of the passive loss issue.