Taxpayer owns a rental property with a basis of $50,000 . A tenant did some damage and the taxpayer received $15,000 from the insurance company for the loss. The taxpayer will not ever be making repairs to the property. $15,000 taxable?
The short answer is yes. The devil is in the details. If the damage was to the building, the recovery causes a reduction in depreciable basis.
Care to share the details? From your answer it would appear it's not currently taxable.
It is treated as a business casualty loss, in the usual manner. The proceeds may have a taxable component if the decline in fair market value is less than the amount of the recovery. See Pubs 584 and 584-B.
