# Insurance Payouts



## Launchpad McQuack (Jan 8, 2019)

Last month I had to have my car towed because it wouldn't start. The tow operator hooked a chain up somewhere underneath my car and winched it onto the tow truck. Once we got to the service center, the car started just fine for the service staff but they said that the steering wheel was off center and the tie rod ends were bent. Initially, I thought they were just feeding me a line of nonsense to drum up business but when I drove the car myself I found that they were definitely right. So after speaking with the service staff, we concluded that the car was likely damaged during towing. We think the tow operator hooked up to something that he shouldn't have and bent it while winching the vehicle onto the tow truck.

So I filed a damage claim with the tow company. As part of the claim process, I had to submit an estimate for the repair costs. I already had an estimate from the service center, but the estimate included other things that were unrelated to the damage claim (air filters, oil change, new tires, etc.). So I went back to the service center and got a second estimate that only included the items related to the damage claim. I figured it would be cleaner that way. When they generated the second estimate for me, they quoted a higher price for the work because they said that they gave me a discount on first estimate for being a Mitsubishi owner and that they would not give the same discount to an insurance company paying for the work. I didn't specifically ask for a higher estimate. They just did it. They told me that if I brought the car in for work myself, they would honor the lower price from the first estimate.

After was all was said and done, the tow company's insurance cut me a check for the amount of the second estimate. My question is whether any of this payout would be considered taxable income. The full amount? The full amount minus what I actually pay for the repair? None of it? I'm not sure how this kind of thing is handled.


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## Bob Reynolds (Dec 20, 2014)

It's not taxable income.


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## UberTaxPro (Oct 3, 2014)

The full amount minus what you actually pay for the repair is taxable.


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## lyft_rat (Jul 1, 2019)

Don't be foolish and play lawyer here, it is not any more taxable than a cash tip.


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## MarkR (Jul 26, 2015)

Launchpad McQuack said:


> Last month I had to have my car towed because it wouldn't start. The tow operator hooked a chain up somewhere underneath my car and winched it onto the tow truck. Once we got to the service center, the car started just fine for the service staff but they said that the steering wheel was off center and the tie rod ends were bent. Initially, I thought they were just feeding me a line of nonsense to drum up business but when I drove the car myself I found that they were definitely right. So after speaking with the service staff, we concluded that the car was likely damaged during towing. We think the tow operator hooked up to something that he shouldn't have and bent it while winching the vehicle onto the tow truck.
> 
> So I filed a damage claim with the tow company. As part of the claim process, I had to submit an estimate for the repair costs. I already had an estimate from the service center, but the estimate included other things that were unrelated to the damage claim (air filters, oil change, new tires, etc.). So I went back to the service center and got a second estimate that only included the items related to the damage claim. I figured it would be cleaner that way. When they generated the second estimate for me, they quoted a higher price for the work because they said that they gave me a discount on first estimate for being a Mitsubishi owner and that they would not give the same discount to an insurance company paying for the work. I didn't specifically ask for a higher estimate. They just did it. They told me that if I brought the car in for work myself, they would honor the lower price from the first estimate.
> 
> After was all was said and done, the tow company's insurance cut me a check for the amount of the second estimate. My question is whether any of this payout would be considered taxable income. The full amount? The full amount minus what I actually pay for the repair? None of it? I'm not sure how this kind of thing is handled.


same as a court case. payout = NO TAX LIABILITY


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## LADryver (Jun 6, 2017)

UberTaxPro said:


> The full amount minus what you actually pay for the repair is taxable.


Compensatory insurance payments, whether spent or not, are not taxable. Not in the sense it is thought of. First, all depends upon the cost basis of the car. That is more complicated than he need be concerned about. 
"As a general rule, casualty *insurance* claim checks are not *taxable*. As long as the check reimburses you for *damage* or loss of your *property*, you won't need to pay taxes on the *insurance proceeds*. However, you may need to report a gain if the amount of the check is more than your adjusted basis in the *property*." Adjusted basis of the property does not refer to the cost of the repair vs the cost of the check. If the check proceeds caused a profit on the sale if your vehicle, the profit is a capital gain. But not until the year of the sale. If you lose money on your car, nevermind the check.



lyft_rat said:


> Don't be foolish and play lawyer here, it is not any more taxable than a cash tip.


Cash tips are fully taxable. They are however fully hidden. Hence you propose tax evasion. Just saying.


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## UberTaxPro (Oct 3, 2014)

LADryver said:


> Compensatory insurance payments, whether spent or not, are not taxable. Not in the sense it is thought of. First, all depends upon the cost basis of the car. That is more complicated than he need be concerned about.
> "As a general rule, casualty *insurance* claim checks are not *taxable*. As long as the check reimburses you for *damage* or loss of your *property*, you won't need to pay taxes on the *insurance proceeds*. However, you may need to report a gain if the amount of the check is more than your adjusted basis in the *property*." Adjusted basis of the property does not refer to the cost of the repair vs the cost of the check. If the check proceeds caused a profit on the sale if your vehicle, the profit is a capital gain. But not until the year of the sale. If you lose money on your car, nevermind the check.
> 
> 
> Cash tips are fully taxable. They are however fully hidden. Hence you propose tax evasion. Just saying.


If you deduct part of the cost of your car as a business expense, the insurance benefit might be considered a gain.


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## LADryver (Jun 6, 2017)

Might be, as opposed to altogether being. The reason is because the write off reduces the cost basis. These are things you know when you sell the vehicle.


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## UberTaxPro (Oct 3, 2014)

So you are only taxed on the benefit if the insurance reimbursement is above the amount of your tax deduction for the use of your car


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## Stevie The magic Unicorn (Apr 3, 2018)

I wouldn't report it as income.

Neither would i report the repair work as a business expense,

It's a net zero gain


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