Originally Posted by TaskMaster
We suffered a house fire in a property owned by my father in law. As a result of the way the policy was written he is being paid for the loss through mediation and plans to write us a check for our lost property. Is the amount he pays us taxable if done in this way?
In general No; however, it depends. If your insurance pays you more than the cost of the property, though, you may owe the government some money. In general, when your home insurer cuts you a check, it isn't usually taxable. The IRS doesn't count insurance payouts as income ; they're a reimbursement for the money or property value you lost. I mean, If your ruined house / your stolen collectible has risen in value, your insurance check may be more than the basis. In that case, you may have taxable income. If your insurer paid out because your main home was destroyed, you may be able to exclude the gain from taxes. Provided you lived there for 2 of the previous 5years, you can exclude $250kin gain or $500k if you file a joint return, just as you could if you sold it. Suppose you bought the home for $200k but it was worth $230k when it burned down. If your insurer cuts you a $230k check, you have no tax liability, despite the $30k gain