My car was stolen. My car insurance company paid me only $2,000 (I
believe the car was worth $3,000). Do I have to include the $2,000
in my gross income for taxes?
No. You aren't required to include the $2,000 you received as
a car insurance settlement under your
for your stolen vehicle as gross income on your taxes. This
money was compensation for what you lost (your vehicle) and is
meant to restore you to the position you were in before the loss of
When a vehicle is damaged or stolen, and an auto insurance
payment is made to either repair the vehicle or pay out
actual cash value
for it (as your insurer did for your stolen vehicle), the insurance
company is only "making you whole" and not putting you in a better
situation, so you aren't taxed on this money as income.
The basic rule is that if you don't profit from your car
insurance settlement, then you won't be taxed on it. (See "
Auto insurance settlements and taxes
This rule applies to medical payments as well. For
example, say that instead of your car being stolen you were in an
accident that not only totaled out your car but caused you to be
injured. You then were paid out a car insurance claim
settlement for medical claims; the money going to pay your medical
bills would not be taxable income. Don't try to deduct these
medical expenses on your tax return though, since you were
reimbursed for them.
If you receive payments from an insurance company for other
items, then they may or may not be taxable according to state and
If you receive compensation for pain and suffering under another
bodily injury liability
coverage, then this typically won't be taxed since it was derived
from physical injury. But if you're in a situation where you
receive compensation for emotional suffering alone, normally this
money is taxable.
If you claim for the time you had to take off work due to your
accident injury and receive compensation for lost wages, then this
usually is considered taxable income, just as your regular wages
would have been.
Should your claim against another party, or insurer, get to
court and you are awarded punitive damages, typically this money
would be taxable. Punitive damages are meant to deter bad
behavior by punishing the guilty party, so it puts you in a better
position and therefore is normally considered taxable income.
These are general guidelines for what can and cannot be taxed
from a car insurance settlement. Tax laws vary and are complex, so
for any complicated or specific tax questions we recommend that you
contact a tax expert for advice.
When replacing a stolen vehicle, it's an excellent time to make
sure you are getting the cheapest car insurance rates possible by
shopping around and double-checking your savings.