How much did it cost to rebuild the new property?

Duh, I'm an idiot. I used to do casualty losses during the big 1985 flood in Virginia, though folks didn't have flood insurance. Very helpful worksheet, thanks!

@Greta  Some of the claim settlement should have been loss or rents. The adjuster would have provided a breakdown .

.  50K property to 130K fire settlement sounds like he got a very good purchase price. 

Yes, he bought a foreclosed property for cash, a helluva bargain. He did separately get rent replacement which I treated as rent income. So to calculate his new basis - I took the 4797 amount he's paying taxes on and used it as remodel cost on the depreciation worksheet, is that right?

This now makes sense as versus late Saturday night - if he were to sell the house down the road he will have increased basis and a smaller tax bite then.

I assume that's what the casualty worksheet 4684 did. I put in the cost basis (after accumulated depreciation), insurance reimbursement, fair market value before and after the fire event, and Form 4797 shows a gain of $78,500 that he is paying taxes on. I thought this would be his new add-on to cost basis. I confess I have not studied this in decades, and have not had other clients in the past like this.

Casualty gain is not taxable to extent proceeds were used to rebuild.

Is there a box on the casualty 4686 worksheet where I indicate that all the proceeds were indeed used to rebuild?

The last advice message is that casualty gain is not taxable if it's used to rebuild the house. Your thoughts?

Back to my original question - what did it cost to rebuild?

HA! I forgot to answer. It took all the insurance money to rebuild. The contractor and the insurance company came up with the amount needed -- they use some software to come up with identical cost. That's why I was thinking that he has no gain now (until he sells the house and makes a nice profit).

You are right - he has no gain.

But of course, the accepted answer is that there is a taxable gain. 

Those are the rules.  Whatever sounds right in first 30 minutes, is a winner.