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plswanson
New Member

business taxes

I received a payment for hail damage on my business vehicle but did not repair the vehicle.  How is this money accounted for?  Is it income or does it just lower the basis of the vehicle?

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1 Reply
KrisD15
Employee Tax Expert

business taxes

It lowers the basis of the vehicle.

 

How this should be handled in TurboTax depends on what you did with the vehicle and how much basis was left on the vehicle before the insurance payout. 

 

In TurboTax:

If the payout was less than the remaining basis, adjust the remaining basis to accommodate the payout amount. 

The easiest way to enter this when using TurboTax would be to convert the vehicle to "personal use" to get it off the books. Next, enter same  vehicle with the new adjusted basis. Report that it had the same "placed in service date" so the asset life remaining will be correct, and report prior depreciation as the amount of depreciation you took. 

 

If the payout was more than the remaining basis, you will have depreciation recapture. Depreciation Recapture is reported and taxed as Ordinary (personal) Income. 

The easiest way to enter this when using TurboTax would be to report that it was sold for the amount of the insurance payout. Again, reenter the vehicle in order to claim other related expenses, and use zero as the basis. 

 

 

According to IRS Pub 547:

"If you have a casualty or theft loss, you must decrease

your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. The

result is your adjusted basis in the property."

 

"Depreciable property. If the damaged or stolen property was depreciable property held more than 1 year, you

may have to treat all or part of the gain as ordinary income

to the extent of depreciation allowed or allowable. You figure the ordinary income part of the gain in Part III of Form

4797. See Depreciation Recapture in chapter 3 of Pub.

544 for more information about the recapture rule."

 

 

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