TP received a building insurance refund in 2020 for insurance that was deduct in 2019

[duanecpa]

TP owns various residential real estate - on their 2019 tax return there was a deduction for building insurance - in 2020 TP changed insurance carriers and received a refund from the previous insurance carrier - amount was deduction on their 2019 tax return - where does one report the refund received in 2020 on their 2020 tax return. Thank you

[TAXNJ]

If insurance was for 2019 tax year why would TP get a refund after the year is finished? Why? See below.

Thought that If you prepay insurance premiums, enter the premiums in the year to which the premiums apply, regardless of whether you are on the cash or accrual method. For example, you pay for insurance premiums that cover this year and next year.

You can only deduct the premiums that cover this year on your current tax return. You can deduct the amount that applies to next year with next year’s return.

[Lion]

If he deducted them in 2019 on Schedule E, then he has 2020 income on Schedule E.

[TAXNJ]

If he deducted them in 2019 on Schedule E, then he has 2020 income on Schedule E.

Are you saying if he deducted the 2020 prepayment as an expense in 2019?

[Anarchrist]

where does one report the refund received in 2020 on their 2020 tax return.

Reduction of insurance expense.

[Anarchrist]

Are you saying if he deducted the 2020 prepayment as an expense in 2019?

12 month insurance premiums can be deducted all in the year paid, so most everyone would have deducted it in 19. Then, yes, the refund is picked up in 2020.

[TAXNJ]

12 month insurance premiums can be deducted all in the year paid, so most everyone would have deducted it in 19. Then, yes, the refund is picked up in 2020.

Are you talking about, if the 12-month rule applies?

[Anarchrist]

Are you talking about, if the 12-month rule applies?

Yes .

[TAXNJ]

Two reply posts with conflicting answers. Which one has supporting source?

Reduction of insurance expense.

vs.

If he deducted them in 2019 on Schedule E, then he has 2020 income on Schedule E.

[Lion]

The OP said the insurance was deducted on the 2019 return. He didn't ask if it was supposed to be deducted in 2019. He asked where to report the 2020 rebate on the 2020 return. The answer is on the same form, such as Schedule E. Anarchrist probably has the better answer, because the rebated insurance was replaced with the new insurance company. Reduction of insurance expense.

[TAXNJ]

The OP said the insurance was deducted on the 2019 return. He didn't ask if it was supposed to be deducted in 2019. He asked where to report the 2020 rebate on the 2020 return. The answer is on the same form, such as Schedule E. Anarchrist probably has the better answer, because the rebated insurance was replaced with the new insurance company. Reduction of insurance expense.

If the OP said the business ended in 2019 and there was a refund of part of the 2019 insurance in the following year 2020,
then would “If he deducted them in 2019 on Schedule E, then he has 2020 income on Schedule E.”, the refund be considered Other Income since there would not be any 2020 insurance to apply against ?

[Lion]

Yes, if the insurance, from any insurance company, no longer existed or was a smaller amount, the rebate would be other income. And, it wouldn't change the bottom line to do it that way in the OP scenario. But I agree with anarchrist that reporting (less for the IRS and more for the company's own year-to-year analysis) the rebate and the new insurance expense that replaced the old insurance company under insurance expense gives a truer picture of the income and expenses of an ongoing business.