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Tax owed on Homeowner's Insurance Settlement?
Old 11-30-2015, 08:35 AM   #1
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Tax owed on Homeowner's Insurance Settlement?

This spring we had some interior water damage due to ice damming on the roof. We filed an insurance claim and got a check from our Homeowner's insurance for about $5K. We hired a contractor who completed the repairs and repainting for about $3K. We spent about $200 in miscellaneous expenses for packing up and clearing out items in the 4 rooms that he had to access.

I'm "ahead" about $1800 and am trying to figure out if and where I need to enter this on my Federal and State (NY) tax returns.

IRS publication 547 and Form 4684 have instructions for entering the basis and FMV of the property involved which doesn't seem pertinent in this case. Searches on this forum and bogleheads didn't turn up a lot. I'm seeing hints that this kind of settlement isn't taxable, but again, nothing specific.

Anyone dealt with such a situation? Any advice? Thanks in advance.

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Old 11-30-2015, 08:43 AM   #2
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You will not get a 1099. I have never seen anyone claim the extra.

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Old 11-30-2015, 09:01 AM   #3
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No, the insurer paid you for their estimate of the cost of the damages from the insured event. The fact that you were able to make the repairs for less is not a taxable event... just like it if cost you more the excess would not be deductible.
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Old 11-30-2015, 11:25 AM   #4
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Originally Posted by Felix Mulier View Post
I'm "ahead" about $1800 and am trying to figure out if and where I need to enter this on my Federal and State (NY) tax returns.
Should be no tax consequence. There are probably exceptions, but in general, insurance payouts from policies paid with after-tax dollars are not taxable.
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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Old 11-30-2015, 11:32 AM   #5
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You're lucky! I went back to the adjuster four times with ever-more-granular justifications and contracts for our basement water issue (which was a plumbing leak). And after the fourth time, they finally gave us barely enough money to replace the carpet.

Having an overage would be awesome. And no, I don't believe it would be taxable; because you could just as easily take the money the insurer gives you to "make you whole" and leave things unrepaired, and it would be your lookout. It's not income; it's reparations.

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Old 11-30-2015, 03:33 PM   #6
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Sometimes it's just time to not over think government regulations. I'm sure you earned it directly or indirectly on your part of the labors correcting the problem.
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Old 11-30-2015, 09:01 PM   #7
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Think of it like a return of capital... it is not a taxable event...

As an example... you get hit in your car by someone.... and you get a check from their insurance company.... but decide not to get your car fixed because it is old or you just do not care... well, you are being compensated for you loss, not making any income...

Remember, the most they will pay you is the blue book value of a car...

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