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Expert Q&A Archive

11/12/2007
Recouping rental property damage on taxes not covered by insurance
I have rental property, and I experienced a loss due to wind damage, which is not covered by my insurance policy, my loss is about $15,000 of damage that I have to pay out of my pocket. Is that deductible on my taxed, or how can I recoup that through taxes, on a rental property?
Rosemary Ervin, CPA:
expert info »
Damage not covered by insurance becomes a deductible expense used to offset the income of the rental property. If you do not repair the damage, there is no deduction. If the repair enhances the value of the property, you may have to capitalize and depreciate. Simply repairing the property to its "pre-wind damage" state, is an expense of doing business, in this case, collecting rent.
Gail Rosen, CPA:
expert info »
You will only recoup the cost of the damage if you actually repair the property. It will be deductible on your tax return in the year that you actually pay the $15,000 to fix the property.

You will only "recoup" the taxes you save based on how much you pay for the repair multiplied by your tax bracket. For example, if you are in the 25% tax bracket and pay out $15,000 for repairs, then your taxes will be $3,750 lower ($15,000 x 25%). Therefore, in essence, you will pay $11,250 for the repair and the government will pay $3,750 (assuming you are in the 25% bracket).

If you actually get a new roof (versus repair it) then you will have to capitalize the cost and write it off as an improvement over the life of the building, which is 27.5 years.