Real Estate Investor · Chico, CA · Member since 2016 · 248 posts · 105 votes
Hello,
I’m dreading tax season because I’ve done pretty well this year. First question, is it too late to spend my money on repairs for this tax bill?
Second question, do I have to pay taxes on a title insurance settlement? I got ~$10k because of an undisclosed easement on a property I bought. It seems to me that I'm not gaining or losing value, aka insurance is giving me only what I've lost in value because of the mistake, no more. So my thinking is that I shouldn't have to pay taxes on it. Of course, I'm not a CPA so this is probably wishful thinking.
Thinking this will be the first year ill owe money :-(
Accountant · Slidell, LA · Member since 2019 · 382 posts · 272 votes
6y
@Eric Mcginn To answer your first question, yes, it is too late to spend money on repairs for your 2019 tax return. For your second question, you should not have to pay taxes on the insurance settlement since your property was impaired by the easement. You should consult with a CPA on how to handle the settlement on your tax return.
I don't agree with your thinking however. Too pre-occupied with taxes. Spending money on repairs for tax bill? You spend money to increase the value of your investment, not to obtain a tax deduction. A tax deduction is simply a discount on what you have to spend. What you call repairs may or may not be tax-deductible, by the way. Painting is deductible. A new roof is very slowly deducted via depreciation.
And as far as dreading to owe the IRS? You said you did pretty well. Great! Would you rather be broke but receive an IRS refund? Owing the IRS is a recognition of you doing well. Of course, we all want to pay less taxes, but legitimate taxes is not something to dread.