Are insurance settlements taxable?
Dear Tax Talk, I received an insurance settlement for a car accident I was involved in. Am I supposed to report my settlement when filing my taxes? — Lisa Dear Lisa, For the most part, insurance settlements for property damage and physical injuries are not taxable income. An insurance payment for property damage is considered compensation to restore your property to its prior condition before the accident. You would only have a taxable gain if the insurance payment exceeds your cost in the damaged property. In the case of automobile damage, this rarely happens, because the car’s value usually declines from the time you purchased it. The amount you receive is considered an adjustment to the cost of the property. Whether or not you restore the property does not affect whether you have a gain. For example, if your car cost you $20,000 and your accident damage was $5,000, the $5,000 insurance payment is used to reduce your cost in the car to $15,000, and you don’t have any gain. If you ge
