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A client is receiving an insurance settlement for a

Customer Question
motorcycle that was totaled, if...
A client is receiving an insurance settlement for a motorcycle that was totaled, if the the settlement is purely to replace the cycle, will there be any tax liability?
Submitted: 24 days ago.Category: Tax
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5/31/2018
Tax Professional: Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional replied 24 days ago
Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,534
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
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Hello!

The settlement will not be taxable since settlement was awarded to replace the motorcycle cost.

"Loss-in-value of property

• Property settlements for loss in value of property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement.

• If the property settlement exceeds your adjusted basis in the property, the excess is income

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Tax Professional: Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional replied 24 days ago

I have placed below a helpful link to IRS.Gov concerning "Settlement Taxability."

https://www.irs.gov/pub/irs-pdf/p4345.pdf

The sheet is only two pages and I find the information helpful for a quick reference.

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Tax Professional: Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional replied 24 days ago

Please let me know if you do have any follow up questions or concerns.

Thank you!

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Customer reply replied 24 days ago
awesome thanks!
Tax Professional: Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional replied 24 days ago

Thank you for requesting me.

Have a great day

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Tax Professional: Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional replied 24 days ago

Hi, please take a moment to accept the answer if you have no further questions.

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