Excess Casualty Reimbursement

[Snaggletooth]

A client was rear-ended in her car. FMV of car was $12,000. Client is expecting insurance proceeds of $25,000.

Form 4684 has the provision for a casualty to result in taxable income. I've just never seen this on an auto accident. Need to get a straight answer as to how the client was able to cover a $12K asset with $25K in coverage. Doesn't make sense.

When I get to the bottom of this, I expect the excess is to cover medical damage. Only damage was a trip to clinic to check for whiplash. Minor expense.

The way I look at this, there will be taxable income if the medical expense is what I expect it to be.

Comments?

[kathyc2]

A client was rear-ended in her car. FMV of car was $12,000. Client is expecting insurance proceeds of $25,000.

Form 4684 has the provision for a casualty to result in taxable income. I've just never seen this on an auto accident. Need to get a straight answer as to how the client was able to cover a $12K asset with $25K in coverage. Doesn't make sense.

When I get to the bottom of this, I expect the excess is to cover medical damage. Only damage was a trip to clinic to check for whiplash. Minor expense.

The way I look at this, there will be taxable income if the medical expense is what I expect it to be.

Comments?

I would expect the 25K payment includes additional items than for just the car. However, would you calculate gain on FMV rather than basis?

[taxmom34]

they do sell insurance that will reimburse the full price of the car instead of depreciated value, but I assume the cost of that is higher. maybe that's what happened here.

[FEDUKE404]

Can't put everything on Form 4684

A client was rear-ended in her car. FMV of car was $12,000. Client is expecting insurance proceeds of $25,000.

Form 4684 has the provision for a casualty to result in taxable income. I've just never seen this on an auto accident. Need to get a straight answer as to how the client was able to cover a $12K asset with $25K in coverage. Doesn't make sense.

When I get to the bottom of this, I expect the excess is to cover medical damage. Only damage was a trip to clinic to check for whiplash. Minor expense.

The way I look at this, there will be taxable income if the medical expense is what I expect it to be.

Comments?

"Assuming" anything is, generally, not a productive route in the tax world.

Certainly there is a detailed explanation of the insurance payments??

I rarely deal with any Forms 4684 (that 10% AGI floor takes care of most), but to the best of my recollection I don't see how anything unrelated to the vehicle per se (was it a business asset?) should be considered there.

It could be there is a provision to reimburse the vehicle costs at replacement value. If so, then proceed. But if you are dealing with medical expenses, loss of income, towing, and who knows what else, I don't think Form 4684 is relevant for separate reimbursements.

FE