How to handle Insurance Claim compensation to homeowner

[ross2022]

As homeowner, I was compensated by my insurance company for coordinating contractor efforts for a complex roofing claim, and am trying to understand how/if this needs to be handled from an income tax perspective.

Thanks for your input on this one.

Details

In 2018 I had hail damage to my home and checks were received in 2018-2021 and transferred to the mortgage lender bank in 2020 & 2021. I received and deposited payments from the mortgage lender bank 2020 & 2021 (majority in 2021).

This was a very complex claim, with multiple contractors and technical challenges to overcome. I had hundreds of hours into this project.

As a result of the complexity and my time involved, the insurance company granted me (homeowner) 10% payment, which was later raised to 20% by the insurance company. They will often pay out a general contractor overseeing 3+ trades this amount as O&P, and labeled it as such. Little known is some insurance companies will also compensate a homeowner in this manner if the claim is complex, requiring significant effort from the homeowner.

I never received any related tax paperwork (1099-MISC, etc) from the insurance company, simply the standard Structural Damage Claim Policy, detailing out all the various claim charges and the 10% 'General Contractor Overhead' and 10% 'General Contractor Profit'

To me, this is complex because yes, I was compensated for my time, but my time would not have been required, had the damage not occurred. Additionally, outside of the policy's coverage, I had the following roofing expenses which were outside the scope of what the insurer included in the claim:

1) architect expenses

2) building consultant expenses

3) construction expenses (when the roof was pulled, it became obvious there was a construction defect from the former owner, requiring roof sheathing be pulled and replaced before the roof could be reinstalled)

Lastly, outside the claim policy statement (which just had 2 line items called out above for O&P), there is no other paperwork I received detailing the payment to me. 

[JohnB5677]

Based on what you've said, you did not get any personal documentation for the time you spent.  The full amount reflected repairs for your home.  In addition, you had expenses for 1) architect expenses 2) building consultant expenses 3) construction expenses.

With these conditions, no portion of the claim policy statement would be taxable.

[ross2022]

JohnB5677 - to begin with, I want to say thank you for taking the time to respond.

To clarify, my expenses for the architect, building consultant, and construction did not exceed the payment I received, which was labeled Overhead and Profit. Does that change your response, or was that assumed already?

Thanks so much!

[JohnB5677 · Accepted solution]

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 home, but if the money is only used to repair your home to its previous state, it won't be taxable.

So as long as you used all of the money for qualified repairs to the house, none of it is taxable.