Money you receive as part of an insurance claim or settlement is typically not taxed. The IRS only levies taxes on income, which is money or payment received that results in you having more wealth than you did before.
You may even qualify for a tax deduction. The amount you deduct will depend on your adjusted gross income and how much of your loss is reimbursed by your insurance company.
The IRS will allow you to deduct the loss in the tax year you experience it or the previous year. Report casualty losses on IRS Form 4684.
- Search for "casualty loss"
- Click the "Jump to" link in the search results.
- On the Casualties and Thefts (or Stolen or Damaged Items) screen, select Yes.
- Answer the interview questions describing your event.
When you complete the event and reach the Property Summary screen, you can enter any additional property losses by selecting the Add a Property button.
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