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Are home insurance payouts taxable?
I just received a large check from my home insurance company for recent damages. I’m not sure if I should put some money aside for taxes. Are home insurance payouts taxable?
Sadie Lovemore · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
That’s a wise consideration, but you should be in the clear! Home insurance payouts are not taxable because they aren’t considered income—you’re simply restoring the original state of your assets.
The IRS taxes your wages and any source of income that increases your wealth. Unless your
insurance company
overpays you, your payout isn’t considered income. You’ll likely use the money for repairs, so you’re not gaining anything. Even if you decide against repairing your home, the payment replaces lost wealth and doesn’t signify capital gain. However, there are some special instances to be aware of:
- If you have any leftover money from your home insurance claim, it may be taxable. This typically applies if you were overpaid by the insurance company, not if you saved money doing the repairs yourself.
- If you made a claim for rental property damage, you might need to pay taxes because it could be considered rental income.
If you’re uneasy about getting started with repairs, speak to a tax professional. They’ll give you advice about properly documenting repairs so that you don’t trigger an audit.
Since the payout is not considered income, you don’t have to worry about putting money aside. However, it’s a good idea to keep a record of any repairs and how you spend the money.
Since you’ve filed a claim, make sure you’re not spending too much on your home insurance policy with
Jerry
. A licensed broker, Jerry does all the hard work of finding cheap quotes from the top name-brand insurance companies and buying new home or renters insurance. Jerry will even help you cancel your old policy if you decide to switch.View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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