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Is my Property Damage Release check entirely taxable?

My car was damaged at a grocery store on a windy day by a rolling empty shopping cart. Luckily I had a non-relative witness who verified my report, as well as collision coverage. I agreed to have the repairs done at a body shop on the store’s insurance affiliate’s “preferred” list—to whom I paid my $750 collision deductible. A few days later, in return for signing and returning their very detailed Property Damage Release, the store’s insurance affiliate mailed me a check for approximately $1,500 as a “Full and final settlement of all claims.” (That’s the phrase on the sheet from which I tore off my paper check.)

   My question: Is any of that approx. $1500 taxable income, which I need to enter on the TurboTax “other income” page?

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Accepted Solutions
PattiF
Expert Alumni

Is my Property Damage Release check entirely taxable?

No, that income is not taxable income that needs to be entered on the tax return. If you receive insurance money for damage to your car, the IRS does not consider that taxable income. Instead, you have received an adjustment to the cost basis you have in the property. Therefore, if you paid $20,000 for the car, and receive $5,000 for damages, your cost basis is now $15,000, which only affects your taxes when you sell the vehicle. Any money you receive over and above the cost basis amount when you sell is considered a taxable capital gain.

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1 Reply
PattiF
Expert Alumni

Is my Property Damage Release check entirely taxable?

No, that income is not taxable income that needs to be entered on the tax return. If you receive insurance money for damage to your car, the IRS does not consider that taxable income. Instead, you have received an adjustment to the cost basis you have in the property. Therefore, if you paid $20,000 for the car, and receive $5,000 for damages, your cost basis is now $15,000, which only affects your taxes when you sell the vehicle. Any money you receive over and above the cost basis amount when you sell is considered a taxable capital gain.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
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