Please answer this question in a research format using only the IRS and Tax court cases as a references.
Answer must be divided in two part 1- Statement of Law 2-Discussion.
Facts:
One of your client BC LLC bought an apartment complex on 01/01/2004. Total Cost of apartment including land was $8,726,210. Accumulated Depreciation as of 12/31/2014 was 4,513,597. BC refinanced the entire loan in 2009. Loan origination cost in 2009 was 333,777 and as of 12/31/2014 accumulated loan amortization was 109,934. Mortgage balance on 12/31/2014 was 3,689,932.
On June 1, 2015 A tornado hit the apartment complex and caused a considerable damage. Half the units became inhabitable. BC returned the security deposits of the tenants and the tenants moved out. Only half of the units were rented out since July 1, 2015.
The insurance company so far has paid $2.5 million. BC is expected to receive in 2016 $1,000, 000 for loss of rental income and damage to property BC paid $721,000 for asbestos removal during 2015 and paid to 3% of $2.5 million to adjuster in 2016. BC also paid 22,000 for environmental cleanup in 2015.
Required:
How to account for $2.5 million payment from Insurance Company
How and when to claim expenses for environmental cleanup and asbestos removal
How much depreciation to claim in 2015 and 2016.