Car Accident Settlement Taxable?

[las0210]

My leased car was totaled in an accident.  The insurance company’s settlement amount exceeded what the leasing company wanted as payment.  I received the difference from the insurance company.  Additionally, the leasing company sent me a check stating the insurance company overpaid them (how/why I do not know).  Are those payments taxable on Federal and Kentucky state returns?  Than you.

[DianeW777]

It depends. Since you received a refund of your lease payments (or two) from an excess paid to the insurance company, first determine if the money your received was more than you actually paid to lease the car, including lease payments after your began to operate the car.  If the payments do not exceed the amount you paid for leasing the car, then nothing is taxable. 

If there is an excess of payments over what you paid for leasing the car report that excess using the instruction below.

Other Miscellaneous Income:

1. Sign into your TurboTax Online account
2. Go to Tax Home (left panel)  Wages and Income  section
3. Scroll to  Less Common Income > Select  Miscellaneous Income, 1099-A, 1099-C
4. Select Other reportable Income > Enter a description (----) and the amount

[Opus 17]

Possibly.  You have taxable income if the settlement is more than you paid for the car, not counting finance changes.  That is not necessarily the same as what the finance company wanted for the remaining value.

For example, suppose you leased a $40,000 car.  The residual amount (buyout amount if you wanted to keep the car at the end) was set at $25,000, so you technically agreed to buy the first 2 years of the car's life for $15,000, plus whatever the lease interest rate was.  Suppose the accident happened right at the end of the lease.  The lessor is going to want their $25,000, plus a bit, more or less.  If the insurance settlement is $30,000 where you get $5000, its not taxable because your original cost was $15,000.

On the other hand, suppose the accident happens halfway through the lease, and the settlement is $35,000.  At that point you would have paid about $7500 for your share of the car.  If $25,000 goes to the lessor and $10,000 to you, then $2500 is taxable (the amount that is more than you paid for your share of the car). 

[las0210]

Opus 17,

    Your explanation made some sense to me. The price of the car was $28148.  The residual amount at the end of the lease would have been $17158.

   My lease expiration was supposed to be earlier this month.  It was totaled last November.  A that time,only had 3 payments left (I had just made the 33rd payment). If I remember correctly, the buyout amount at that time was around $19000 as I was thinking about trading it in either in Dec or Jan.

   The settlement amount calculated by the insurance company was $24292.  They paid the leasing company $22860 and sent me the difference of $1432.  Then, later, the leasing company sent me a check for $3508 with no explanation.  When I called, the person I spoke to said the insurance company overpaid them (???).  So, in total, I received $4940 from the $24292 settlement amount calculated by the insurance company.  Is the $4940 considered taxable income?

   I should mention the accident was not my fault.  The other party ran a red light and t-boned my car.  I would up having to file the accident through my own insurance company because I the at fault insurance company was dragging their feet.  I figured my insurance company could deal with them.

   Oh,  I almost forgot I did eventually receive a check for $2500 for “pain and suffering from the at fault insurance company.  I did not lose any income due to injuries received (only severe bruising in spite of my vehicle rolling over twice.  As far as I can determine, I don’t believe this amount is taxable (??).

Thank you so much for your help.  I started to file my taxes online using Turbo Tax but could not find any information with regards to these payments.

Leslie Smith

[Opus 17]

" So, in total, I received $4940 from the $24292 settlement amount calculated by the insurance company.  Is the $4940 considered taxable income?"

How much did you pay in lease payments, not counting the portion of the lease payment that was interest or finance charges?  If you paid more than the amount you received, it is not taxable.  If you paid less than the amount you received, that difference is taxable income.  

[las0210]

I paid out $8545.  Am I correct in assuming the $2500 from the at fault insurance company for “pain and suffering” is not taxable?

Thanks

[Opus 17]

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@las0210 wrote:

I paid out $8545.  Am I correct in assuming the $2500 from the at fault insurance company for “pain and suffering” is not taxable?

Thanks

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Damages for pain and suffering are not taxable if the pain and suffering was the result of physical illness or injury, but it is taxable if it was for other reasons.