Business insurance claim payment

Forum|Forum|4 years ago
March 15, 2022
3 replies
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I'm a self employed, freelance photographer. I do a SCH C.

Last year I lost a camera, lens and tripod in an accident. I carry insurance on my photo equipment.

Made an insurance claim, insurance company paid the claim for replacement value minus my deductible.

I purchased a new camera, lens and tripod with the claim money plus from the business account. (Total paid by insurance didn't cover total of new gear)

Is the insurance payment claimed as income?

Is the new purchase of equipment still delectable on 2021 taxes?

Not sure how to input this into TTHB

Thanks in advance.

TurboTax Home & Biz Windows

JohnB5677

No, the insurance payment should not be claimed as income.

Yes, the new equipment is deductible on your 2021 taxes. Be sure to close out the old equipment if it was listed as an asset.

To enter the purchase:

Go to Business
Let's find some Business deductions = Continue
I'll choose what I work on
Select your business
Select Business Assets
Follow the interview and post the Camera and equipment.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

KellyMatthews1

Regarding the new equipment purchase, you can likely deduct it on your 2021 taxes. Business-related equipment purchases are often eligible for tax deductions, but the specific rules can vary based on your location and tax laws. Make sure to keep thorough records of the purchase, including receipts and any relevant documentation, to substantiate the deduction.
If you're uncertain about how to enter this information into tax software like TTHB, you might consider reaching out to this insurance company. They should be able to assist you in properly recording the claim and equipment purchase on your taxes.

Opus 17

Employee

I realize this is a year old, but some of these answers contain incorrect information.

First, on the loss and insurance payment. The insurance payment is taxable if it exceeds the adjusted cost basis of the equipment, including depreciation. When you place equipment (assets) in service for a business, you are supposed to list them for depreciation. You might be able to depreciate the asset all at once, or it might be depreciated over time. The adjusted cost basis is the purchase price minus the depreciation you took or could have taken. If you have an asset that costs less than $2500, you can take it as an expense instead of depreciating it, and your adjusted cost basis is zero, because you fully deducted the purchase price.

When you receive an insurance payment for the asset, that is treated the same as if you sold the asset for the reimbursement, and that is how you report it in Turbotax. If you sell an item for more than the cost basis, you have taxable income called depreciation recapture. For example, suppose you have a $5000 camera you are depreciating over 5 years, and it is lost or stolen in year 2, after you have taken the first $1000 of depreciation. The adjusted cost basis is now $4000, if your insurance payment is $4500, you have $500 of taxable depreciation recapture. Furthermore, if your insurance payment is only $4000, you have a $500 deductible business loss.

Then, if you buy replacement items, that is handled as a completely separate transaction. You are adding a new asset to the business, and you can expense it under the $2500 safe harbor, or depreciate it, depending on your financial position and the needs of the business. Buying a new asset doesn't affect the income or loss calculation on the old asset, even if you use the insurance money to do it. It's just two separate things.

Anonymous_

Employee

See https://www.irs.gov/publications/p547#en_US_2022_publink1000225390

Taxpayers can generally postpone the recognition of gain to the extent they purchase replacement property per Section 1033.

The basis of the replacement property would be the same as that for the property that was subject to the theft, loss, or other casualty (basis is decreased by the amount of insurance reimbursement not expended for the replacement property - basis is also decreased if any loss was previously recognized and increased if any gain was previously recognized).

Further, an asset costing asset $2500 or less (business use) subject to the de minimis safe harbor election (which effectively have a basis of $0) is not considered to be Section 1231 property or a capital asset. As a result, any recognized gain on that asset would be taxed at ordinary income tax rates and not limited to depreciation recapture rates (i.e., capped at 25%).