Insurance settlement taxable?

[dondub]

My tax accountant says yes but I’m seeing different opinions on line.

A tenant methed their unit. Abatement and rehab and lost rent total $75,000. I know the lost rent payment will be taxable income, but what about the rest after our deductible? Can the damage, about $68,000, be written off or does the settlement make it a wash.

Thanks.

[jerseygirl]

Wow that’s terrible damage
I’d sell the rental and never want to go through this again
Probably not able to sue the tenant cause probably they have no money

DD found charging higher rents brought tenants with more income and more responsible (needed to get more income)

[haapai]

The best advice that I can offer is to go back to your tax accountant and listen more carefully.  The lost rent payments portion of the settlement should almost certainly be taxable.  I have absolutely no quibble with that.  Whether the remaining $68K is taxable or not may hinge on whether it has already been declared as a loss. 

[dondub]

Feb 2, 2023 16:49:12 GMT -5 jerseygirl said:

Wow that’s terrible damage
I’d sell the rental and never want to go through this again
Probably not able to sue the tenant cause probably they have no money

DD found charging higher rents brought tenants with more income and more responsible (needed to get more income)

It’s a 26 unit. Won’t be selling. The tenant was completely vetted by the PM. He has been sent to collection, of course.

[dondub]

Feb 2, 2023 17:23:30 GMT -5 haapai said:

The best advice that I can offer is to go back to your tax accountant and listen more carefully.  The lost rent payments portion of the settlement should almost certainly be taxable.  I have absolutely no quibble with that.  Whether the remaining $68K is taxable or not may hinge on whether it has already been declared as a loss. 

I listened. She said if I deduct the damage expense I have to declare the settlement. No double dipping. But half the damage was paid by Dec. 31, 2022. Have not received a check yet from the insurer, although some is on the way now.

[TheOtherMe]

I agree that if the expenses have been deducted, the settlement will need to be treated as income.  That would be double dipping.  Any expenses in excess of the settlement should be deductible.

[The Walk of the Penguin Mich]

I was under the impression that insurance payments were supposed to make you whole.  If someone totaled your car, you wouldn’t have to pay taxes on the repairs or cost to replace it, so why would you have to pay taxes on the insurance payments to make it habitable again?  Am I missing something?

Agree about the rental portion being taxable though.

[dondub]

Feb 2, 2023 20:03:04 GMT -5 The Walk of the Penguin Mich said:

I was under the impression that insurance payments were supposed to make you whole.  If someone totaled your car, you wouldn’t have to pay taxes on the repairs or cost to replace it, so why would you have to pay taxes on the insurance payments to make it habitable again?  Am I missing something?

Agree about the rental portion being taxable though.

Yes, the lost rents are taxable. And that’s the same opinion I found on line mich. but when the car gets fixed it’s by the insurance proceeds and not out of pocket.

[azucena]

If you're not sure you're getting the right advice from your tax person, is he/she part of larger firm that you could ask for supervisor to respond on this case?

[The Walk of the Penguin Mich]

Feb 2, 2023 20:24:17 GMT -5 dondub said:

Feb 2, 2023 20:03:04 GMT -5 The Walk of the Penguin Mich said:

I was under the impression that insurance payments were supposed to make you whole.  If someone totaled your car, you wouldn’t have to pay taxes on the repairs or cost to replace it, so why would you have to pay taxes on the insurance payments to make it habitable again?  Am I missing something?

Agree about the rental portion being taxable though.

Yes, the lost rents are taxable. And that’s the same opinion I found on line mich. but when the car gets fixed it’s by the insurance proceeds and not out of pocket.

I guess that’s my point.  If you abate the apartment and pay OOP, then you can deduct the abatement from your taxes.  Then I guess you’d have to pay taxes on what the insurance reimburses you, right?  

Is it just the one apartment in the multi unit building, or are others affected?

[dondub]

Feb 2, 2023 20:32:15 GMT -5 The Walk of the Penguin Mich said:

Feb 2, 2023 20:24:17 GMT -5 dondub said:

Yes, the lost rents are taxable. And that’s the same opinion I found on line mich. but when the car gets fixed it’s by the insurance proceeds and not out of pocket.

I guess that’s my point.  If you abate the apartment and pay OOP, then you can deduct the abatement from your taxes.  Then I guess you’d have to pay taxes on what the insurance reimburses you, right?  

Is it just the one apartment in the multi unit building, or are others affected?

That what I am trying to determine. My accountant says “taxable”. And not just the 1 unit. He also contaminated 5000sq’ of attic crawl and insulation.🤬

[TheOtherMe]

The car would depend on whether it's use was personal or business.  If personal, nothing has been deducted on the tax return.  If deductible, it has and the insurance is reimbursing you.

[The Walk of the Penguin Mich]

Feb 2, 2023 20:54:45 GMT -5 dondub said:

Feb 2, 2023 20:32:15 GMT -5 The Walk of the Penguin Mich said:

I guess that’s my point.  If you abate the apartment and pay OOP, then you can deduct the abatement from your taxes.  Then I guess you’d have to pay taxes on what the insurance reimburses you, right?  

Is it just the one apartment in the multi unit building, or are others affected?

That what I am trying to determine. My accountant says “taxable”. And not just the 1 unit. He also contaminated 5000sq’ of attic crawl and insulation.🤬

Oh, sheesh!  What a mess!

[dondub]

Feb 2, 2023 22:40:44 GMT -5 The Walk of the Penguin Mich said:

Feb 2, 2023 20:54:45 GMT -5 dondub said:

That what I am trying to determine. My accountant says “taxable”. And not just the 1 unit. He also contaminated 5000sq’ of attic crawl and insulation.🤬

Oh, sheesh!  What a mess!

6 months worth and then I figured out St. Farm was going to deny the claim. The letter was prepared but my agent stepped in, talked to a manager and they put a hold on it all through Christmas and New Year. When I figured out they were in denial mode he admitted it and took that action.

Then I emailed 4 links I found about not letting your insurance company get away with it. A link inside a link had a St. Farm case where THEY lost at the state Supreme Court level somewhere. Also a WaSt case where insurance paid. St. Farm corporate legal was willing to break the law, according to a lawyer friend that had done insurance work. So those links were a shot across the bow.

When they decided to cover the claim, my agent said those links were a deciding factor. Can you say treble damages. Checks are on the way.😎