Damaged Rental Property

[Christian]

A client who owns a small rental house had difficulty evicting a renter. On taking possession of his property he found a disaster and incurred over $30,000 in repair and remodeling expense. Some of what was done is structural to the house. New siding, bathroom upgrade, floor replacement, while other things done are basically repairs. My assumption is the structural changes must be depreciated over 27.5 years and the repairs charged off last year when incurred. Is this correct ?

[jklcpa]

Any insurance coverage and reimbursement?

[Christian]

It's been a hectic day and I failed to inquire about insurance but planned a follow up. Yes they had insurance which will cover a substantial part of this which makes my job much easier. If it covers most of this I can simply credit it to repair expense. I am running into an unusual number of sticky wickets this year. They did buy a number of new appliances which will take five year schedules. The insurance payment may eliminate a huge chunk of my problem.  

[Christian]

It's been years since I have had one of these. The insurance will cover about 60 percent of what was spent to repair the home. The appliances replaced were all depreciated out. This leaves the other 40 percent the client paid out of pocket for. This will be expensed for 2024. Does the depreciated value of the house remain the same? I am making the assumption it will.    

[mcb39]

I believe that you will have to add the rest of the 40% which were not fixed assets to the basis of the rental at 27.5 years.  This trashing of rentals seems to be the rule rather than the exception the past few years. (Depending on the class of rental properties the client has.)