We lost our STR this spring due to a wildfire. Our insurance (replacement policy) has paid out the cost to rebuild which our mortgage company is holding. Every cent of this insurance payout will be going to rebuild this house. We also got loss of rents, which I understand to be taxable income. We are trying to figure out if the home replacement insurance payout is also taxable. Unfortunately we had only owned the home 3 months prior and had not taken bonus depreciation on it yet.
Insurance Agent · all 50 states · Member since 2022 · 184 posts · 122 votes
3y
Monies received as a payout from insurance is not normally deemed as income. It is a benefit, not income and therefore not taxable by the IRS.
You are correct that the loss of rents coverage is most likely taxable but if you work with a good tax accountant or a tax attorney they can help to navigate the deductions that you can take from the loss of rents payout to lower your tax liability.
Work with your accountant or find a good accountant who is familiar with what you need as a real estate investor and who is in line with what you want to achieve both this year and for years to come. (tax planning/strategy)