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It's only a zero sum game if the amount of the insurance payout matches the cost of the new carpet. Most insurance policies have some form of excess that the OP would have to fund out of his own pocket.

The basic answer is yes you can. The first carpet is written off, the replacement is added to the depreciation schedule to offset the income received from insurance. After the second tenant leaves, that carpet that has been added to depreciation in the current year is also scrapped. The...