Good day experts. I am trying to understand the tax laws and determine my tax liability for a rental property that I have sold in 2018. The uniqueness of this transaction is in the fact that the property suffered a fire, and I collected insurance proceeds, but sold the house "as-is" after the fire, putting minimal money into the property from the insurance proceeds.
Based on what I have read about taxes on the sale of rental homes, I'm nervous that I am going to be looking at a hefty tax bill. I will outline my interpretation of what I have read below, in the hopes that someone here will tell me that I am waaay off and my tax liability will be much less. So, here goes...
1) Sale price (minus) adjusted basis = taxable gain
2) Adjusted basis = Orig purchase price (plus) improvements (minus) depreciation (minus) insurance collected
$190,000 Purchase price in 2000
+ $6,000 New roof
-$108,000 Depreciation ($6k x 18 years)
-$200,000 insurance from loss
+ $17,000 improvements after loss
-$95,000 Adjusted basis
Sale price – adjusted basis = taxable gain
$200,000 – (-$95,000) = $295,000
$295,000 * 15% = $44.250
So my main questions are as follows:
1) Is my logic sound?
2) Is it possible to have a negative Adjusted Basis? And if so, is it actually added to the sale price?
3) What strategies can I take to reduce my tax burden?
4) Can I subtract the 10% paid to my Personal Adjuster from the total insurance payment amount?
Thank you all soooo very much in advance for any info you can share with me on this subject. I'm not sure that my heart or my wallet can handle such a tax hit.