No, that income is not taxable income that needs to be entered on the tax return. If you receive insurance money for damage to your car, the IRS does not consider that taxable income. Instead, you have received an adjustment to the cost basis you have in the property. Therefore, if you paid $20,000 for the car, and receive $5,000 for damages, your cost basis is now $15,000, which only affects your taxes when you sell the vehicle. Any money you receive over and above the cost basis amount when you sell is considered a taxable capital gain.
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