Auto insurance proceeds...

[equinecpa]

I have a client who was in an accident with their business vehicle. The cost of repairs were about $5000, but they received $12,000 as an insurance settlement. I'm not sure if their vehicle was repaired to the same condition as it was before the accident but if it was where does this get reported? I was going to go to the casualty loss....but this is a gain? The basis in the vehicle is zero (it is fully depreciated), so I can't reduce basis.

And if the vehicle wasn't restored to it's original condition can this be washed through the casualty loss form?

[AuditorTurnedGood]

Sorry to say,

but I have a feeling they have a taxable gain here. There doesn't appear to be a casualty loss. If they didn't use the funds to repair the vehicle back to original condition, that won't create a casualty loss.

Since the casualty loss for business use property is the adjusted basis LESS any salvage value LESS any insurance reimbursement, there is no loss here.

However, a gain on reimbursement is determined as the amount of insurance reimbursement received LESS the adjusted basis at the time of the casualty.

So it seems there is no loss, and it appears they have a 12K taxable gain, unless the gain qualifies to be postponed. Checkout Pub 547 for more detail.

ATG