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Q: what can I be taxed on ( Answered,   2 Comments )
Subject: what can I be taxed on
Category: Business and Money
Asked by: boonies000-ga
List Price: $2.00
Posted: 30 Sep 2005 13:17 PDT
Expires: 30 Oct 2005 12:17 PST
Question ID: 574731
Is a check I recieved from a claim on my Homeowners Ins. taxable? Will
I have to claim this as a income at the end of the year on my taxes?
Subject: Re: what can I be taxed on
Answered By: neurogeek-ga on 30 Sep 2005 20:49 PDT
Hi boonies000,

I am assuming that, since Google Answers is a USA-based service, that
you are asking for tax information in the United States.

In general, if the amount of your check was greater than your cost to
repair or replace the insured property, or if you decided not to
replace the property, then you DO have to report that payment as
income.  If you used the check to replace or repair your property, or
if you plan to, then you might not have to claim it as income, but
probably have to report the whole transaction.  You can postpone the
decision to repair or replace for at least 2 years, and longer in some

Publication 547 describes how and when to report casualty and theft
losses or gains to the IRS.  Ultimately, these amounts are reported on
a Form 4684, and entered as either capital gains on Schedule D or as
itemized deductions on Schedule A of the Form 1040.  Publication 547
has many helpful examples.  Hopefully you can find your situation
described there.

One example that I found particularly helpful (IRS Publication 547,
page 9 column 2):
Example. In 1970, you bought an ocean-front cottage for your personal
use at a cost of $18,000. You made no further improvements or
additions to it. When a storm destroyed the cottage this January, the
cottage was worth $250,000. You received $146,000 from the insurance
company in March. You had a gain of $128,000 ($146,000  $18,000).
You spent $144,000 to rebuild the cottage.  Since this is less than
the insurance proceeds received, you must include $2,000 ($146,000
-$144,000) in your income.

Form 4684 is used to calculate the amount of gain or loss you can
claim from a casualty or theft.  Even if you think your gain/loss will
be $0, this form may be useful in determining your adjusted basis
("original cost"), which you need to know when you sell the property.

Form 4684 Instructions:

Finally, if your home was located in an area declared by the President
of the United States to be a disaster area, and your claim was a
result of the disaster, then special rules apply.  These rules are
covered in Publication 547 and instructions to Form 4864.  The short
story is that people in disaster areas don't have to report certain
gains as income, and they may postpone repairs for longer periods of

Please ask for a Clarification if you still need help with your
original question.  I've tried to answer as clearly as I can, but as
you can see the exact answer depends on the details of your situation.

Another option to consider is professional tax advice.  H&R Block
offers tax answers for $20:
Subject: Re: what can I be taxed on
From: omnivorous-ga on 30 Sep 2005 16:08 PDT
Boonies000 --

Surprisingly property & casualty insurance apparently covered in IRS
publication 525, "Taxable & Non-Taxable Income, 2004."  (And if you're
outside the U.S., even that isn't going to be any help.) 

It's also not covered in their telephone Teletax topics.  I think that
you'll need to call them at  1-800-829-1040.

If you had claimed a casualty or theft loss (on Schedule A), the
reimbursement would be taxable.  But I can't find the proper IRS
documentation that discusses homeowners insurance payments.

Best regards,

Subject: Re: what can I be taxed on
From: omnivorous-ga on 30 Sep 2005 16:10 PDT
That should read "property & casualty insurance is apparently NOT
covered covered in Publication 525."

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