tax question: got in a car accident and got a claim from insurance company...

[Phokus]

They gave me some money for a new car. If i decide not to buy one, can i get taxed on that? I basically go to work w/ my fiancee so i really don't have an immediate need for a car. I figure i might put that money down on a house or something.

edit: oh yeah and the car was a total loss btw.

 

[Injury]

No.

This is not income. This is the value of something you already purchased in cash form.

You were taxed when you got the money that you later used to buy the car, you were taxed when you purcashed the car. You cannot be taxed on money that was an exchange for the car.

 

[Phokus]

Originally posted by: Injury
No.

This is not income. This is the value of something you already purchased in cash form.

You were taxed when you got the money that you later used to buy the car, you were taxed when you purcashed the car. You cannot be taxed on money that was an exchange for the car.

See, that's what i thought, but i remember reading about involuntary conversions in my income tax class a few years ago:

http://www.wwwebtax.com/deductions_casualty/involuntary_conversions.htm

I'm just wondering because my mom told me the same thing you did.

 

[FoBoT]

don't confuse life insurance benefits and payoff of a car insurance claim

read IRS Publication 525, Taxable and Nontaxable Income

Life Insurance Proceeds

Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract.

Casualty insurance and other reimbursements. You generally should not report these reimbursements on your return, unless you are figuring gain or loss from the casualty or theft. See Publication 547, Casualties, Disasters, and Thefts, for more information.

so unless you are trying to write off the loss, then the reimbursement from the car insurance is not taxable, i think that is what it means

 

[Injury]

Originally posted by: FoBoT
don't confuse life insurance benefits and payoff of a car insurance claim

read IRS Publication 525, Taxable and Nontaxable Income

Life Insurance Proceeds

Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract.

Casualty insurance and other reimbursements. You generally should not report these reimbursements on your return, unless you are figuring gain or loss from the casualty or theft. See Publication 547, Casualties, Disasters, and Thefts, for more information.

so unless you are trying to write off the loss, then the reimbursement from the car insurance is not taxable, i think that is what it means

Yup, my interpretation of this is that the only way you'd have to pay taxes for it is if their is a gain/loss involved... (in the case of a car insurance claim, they pay at value, so nope.) or if you settle outside of the policy, like, you're paid off to make a claim or something (possibly through court or other means).

In the link that you gave, Phokus, it cites the need for paying taxes if there is some form of gain on the goods. Like I said, insurance (at least in this case) is just a conversion of assets from a car into cash.

 

[Phokus]

Ok thanks guys