Our residential rental business purchased a home with land that needed to be renovated and was never placed in service because the home was destroyed in a fire during renovation. I know that the land cannot be depreciated, but can the home be depreciated or do we recover our losses another way?

ANSWER

The BIDaWIZ Team's Answer:

The property would be retired from service if it was completely destroyed due to the fire. The basis is irrelevant and thus there is nothing to depreciate. The loss would be recorded via Form 4684. This is referenced in IRS Publication 527. If your question has to do with insurance covered to replace the destroyed property, that is different. Please let us know if that is the case.