Rental Fire - are insurance proceeds taxed?

Question

Rent house burned down.  It was a total lose.  Insurance money was paid out and I'm coming out ahead by $40,000.  Will I need to pay taxes on the gain next year?  If so, is there a way to avoid paying taxes?

Natalie Kolodij · Answer

If you're coming out ahead from the proceeds they may be taxable unless you utilize a 1033 Exchange.

Talk to your tax professional- you don't want to take random internet advice on an unexpected $40k of income.

Natalie Kolodij · Answer

Yes I SOMEHOW

Misinterpreted something which only said

"I own a fire damage restoration company and flip fire damaged houses. Let me know if I can be of any assistance. "

As you offering your services. How silly of me. Moderators scan through thousands of posts a day on here- when your post literally says you own the service they need and to reach out for help....it's going to get pulled.

It's not my job to research your location, business service area, ect ect. It's your job to be clear that you're offering guidance for free- NOT your company's services.

Jeremy VanDelinder · Answer

So let's try this again--I posted in a previous post, but somehow a moderator took a genuine offer to help as a solicitation of services. So to be clear--I'm almost 200 miles away from you. You are way outside of my area and I DO NOT work in your area.

That having been said, fire damage is my area of expertise because I own a fire damage restoration company and flip fire damage properties. If you need any advice or have questions, I'm happy to help. (For NO CHARGE) 🙄...because I'm pretty sure that's what the forums are for. Helping fellow investors.

Christopher Smith · Answer

Sounds like a section 1033 involuntary conversion where taxability is driven by whether you replace the property or not.

Keith Kellermeyer · Answer

Hey Todd!

I am by no means an accountant or a tax advisor in any way, so this is not professional guidance. That being said, I don't think that the insurance check is taxable. I believe it would be taxable if the insurance check designated that it was for "replacing income". If it does designate that a portion is to replace income, you will most likely need to claim that as income and pay taxes on that income. Other than that, usually insurance checks are used for asset replacement, medical expenses, "pain and suffering", etc.

I'll also add that, if the proceeds are not reinvested quick enough, then the insurance payout may be viewed as capital gains, in which case you would need to pay taxes.

Hope this helps!

Rental Fire - are insurance proceeds taxed?

Rental Fire - are insurance proceeds taxed?

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