What is the right way to enter a new roof on a rental (casualty) when insurance proceeds are more than cost?

[Amy S]

Client has a rental: original cost $78,222 less depreciation $31,177 = adjusted basis of $42,045.

Client was reimbursed $25,724.51 from insurance for hail damage and the cost of the roof was only $16,850. 

Is it correct to enter the information on the depreciation schedule in the Casualty or Theft input?

Insurance or other reimbursement is self-explanatory. What do I enter in FMV before casualty or theft and FMV after casualty or theft to get the right number?

Don't I reduce the cost basis by the amount of the insurance reimbursement and then add the actual cost? Should I adjust the cost basis by the amount of the insurance reimbursement in the casualty input area and then add the cost of the new roof as a separate line item?

[taxmo]

Yes.

Casualty Gain/Loss

Deductions -> Depreciation -> Disposition section -> "Casualty or Theft (4684)"

FMV before is whatever reasonable estimate you have of the FMV of the property (county tax records, etc).  FMV after is that same amount, minus the cost of the repair (that's the easiest method at least).  Enter the insurance payout in the "Insurance or other reimbursement" field.  If not reducing the basis, don't enter a "Date sold", instead override "1=short term, 2=long-term" so it shows up in the right section of the form.

In this case where the insurance payout was more than the cost of the repair, you end up with capital gain.

Basis Adjustment

Depreciation basis adjustment = repair cost - casualty loss. So there is no change in basis if the casualty loss is the same as the actual repair cost.