Insurance check

Forum|Forum|5 years ago
February 27, 2021
1 reply
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I received an insurance check in 2020 for hail damage to my commercial rental building. I have not been able to line up a contractor for the repair as yet. Do I have to take the insurance check amount as profit for 2020? I am still trying to line up a contractor but am not having success as yet.

Not A Product Question

Carl

Level 11

Yes, it's profit. Even if you lined up the contractor and paid them in 2020, it's still profit. What you pay for the new roof just adds to the cost-basis of the structure and gets depreciated over the next 40 years. Depreciation doesn't start until the date/year you place the new asset "in service" as a business asset. So what you pay in taxes on it in 2020, you'll get back (in a sense) over the next 40 years as you depreciate the new roof.

carroll-j-1Author

Level 2

Thanks. I was thinking since I was repairing storm damage it would be deductable but I now see it improves the property for a number of years and must be depreciated.

ToddL99

Level 13

Your insurance settlement is not taxable income - it is compensation for hail damages that you will have to repair to make yourself "whole"

Since it is not income, you won't get to depreciate or deduct the cost of the repairs - at least up to the amount of the settlement. Any repair costs exceeding the settlement amount may be deducted (or added to the cost basis of the building and depreciated).

From Do I Have to Pay Taxes on My Insurance Settlement?:

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.

Because the purpose of insurance is to "make you whole", you should generally only receive enough payment to bring you back to the state you were in before an incident occurred. You might receive a substantial payout from an insurer to fix your car, but if the money is only used to make you whole, it wouldn't be taxable.