I am also still circling the issue of the loss, because an estimate of $65k to repair it doesn't result in a tax loss of $111k. If that $65k would restore it, then it would have no diminished value condition, which is what you seem to be doing with that math difference. As for the payment of $10k to the HOA, it isn't clear why that was owed and paid. It could be normal, everyday, HOA operations; they get assessment-happy sometimes.