I get a car! And I get a car!
February 26, 2010 8:41 AM Subscribe
I'm purchasing a new car, and I'm getting conflicting information about what to do with an insurance settlement check I received.
My insurance company recently decided to settle a claim with me, and I received a check for the actual cash value of my car (over $14K) minus the remainder of the loan (under $3K) minus my $250 deductible. So I have a check for more than $11K, and I'd like to put all of it toward the down payment on my new car.
I'm hearing that if I take the check and deposit it, that counts as income I'll have to report to the IRS.
I'm ALSO hearing that it's not taxable income, based on the idea that I effectively sold the car to my insurance company for less than I paid for it originally, so I didn't make any money off of the deal.
Can any CPAs out there (yes, yes, who aren't my CPA) straighten me out on this? I'm in Virginia, if that makes a difference.
My insurance company recently decided to settle a claim with me, and I received a check for the actual cash value of my car (over $14K) minus the remainder of the loan (under $3K) minus my $250 deductible. So I have a check for more than $11K, and I'd like to put all of it toward the down payment on my new car.
I'm hearing that if I take the check and deposit it, that counts as income I'll have to report to the IRS.
I'm ALSO hearing that it's not taxable income, based on the idea that I effectively sold the car to my insurance company for less than I paid for it originally, so I didn't make any money off of the deal.
Can any CPAs out there (yes, yes, who aren't my CPA) straighten me out on this? I'm in Virginia, if that makes a difference.
Sadly I've received a few insurance settlement checks. It isn't income unless you managed to get more for your car than it was worth. Which you didn't so there's no tax.
Putting all that money into a down payment is great if your goal is a lower payment/shorter term. But not if you're going to get an luxe car and still have huge payments.
posted by birdherder at 10:32 AM on February 26, 2010
Putting all that money into a down payment is great if your goal is a lower payment/shorter term. But not if you're going to get an luxe car and still have huge payments.
posted by birdherder at 10:32 AM on February 26, 2010
First of all, insurance payments are not income, and you can even take a deduction for non-reimbursed loss (such as a deductible) IRS link
Also, cashing the check has no bearing on whether you owe taxes. If you did owe taxes on that money (which you do not), you would have to report it to the IRS regardless of whether you cashed the check.
posted by Nothing at 12:53 PM on February 26, 2010
Also, cashing the check has no bearing on whether you owe taxes. If you did owe taxes on that money (which you do not), you would have to report it to the IRS regardless of whether you cashed the check.
posted by Nothing at 12:53 PM on February 26, 2010
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However, if I may go off on a minor tangent. There is no reason to incur dept here. Buy a used vehicle for cash. In my case last year, I spent $5000 less on the replacement vehicle and banked the difference of the insurance check. Your misfortune presents a rare get out debt free opportunity. Take advantage of it.
posted by COD at 9:45 AM on February 26, 2010