Is an insurance claim taxable?
When insured persons have to pay tax on compensation payments
After a loss, the money from the insurance usually ends up comfortably in the account. Do insured persons also have to declare this money in their tax return? As is almost always the case in tax law, the answer is: It depends - and on a case-by-case basis.
In most cases, the following applies: Money from the insurance does not have to be reported to the tax authorities if damage from private life is compensated. If the household contents insurer replaces the entire home furnishings after a water pipe burst, the insurance benefit is tax-free. It does not depend on the amount of the damage.
The reimbursed costs, for example for the roof repair of your home after a storm, do not have to be reported to the tax authorities. And even if the car insurance of the other party in the accident transfers the cost of the car repair, the amount does not have to be taxed. In principle, this also applies if the compensation is paid out as a current pension after the traffic accident (for example, as a maintenance replacement or compensation for pain and suffering).
Exceptions for computer workstation glasses or domestic study
Exceptions arise, above all, if the insurance replaces things or provides services that have already been or are to be claimed for tax purposes. This can be the case with computer workstation glasses, for example.
If the insurance pays for broken glasses that the employee has deducted from the tax in the income-related expenses as work equipment, the insurance payment must be offset against the next tax return - as a kind of negative income-related expenses. Only then can the employee claim the new glasses as work equipment for tax purposes. Or the employee has to offset the compensation against the costs for new glasses and can only claim the excess amount as income-related expenses.
When do I have to state insurance benefits in the tax return?
You should declare insurance benefits for tax purposes, though
- the services represent a replacement for taxable income or tax-deductible expenses, or
- the insurance premiums were deducted from tax at the time as income-related expenses or business expenses.
Complicated calculation with only partial professional use
The same applies, for example, to the furnishing of the home office that is claimed for tax purposes. Here, too, the money must be stated in the tax return if the insurance pays compensation - for example if the desk has to be replaced due to a fire. Then only a possible remaining amount for the new desk can be deducted. For the deduction of income-related expenses in the next tax return, the following would apply: the price of the new desk minus the compensation payment for the old one.
If a liability insurer replaces the work computer because the person sitting next to you on the train tips the coffee on the keyboard, employees must also deduct the insurance benefit from the advertising costs for the new computer. It gets more complicated if the purchase is only partially tax deductible: If the computer is used partly privately and partly professionally and only partly deducted as income-related expenses, the compensation payment from the insurance only has to be taxed on a pro-rata basis. Even if the insurance premiums were deducted from the tax as income-related expenses or business expenses, the tax liability applies. In that case, the benefits arising from the insurance must also be taxed.
Replaced rental payments must be taxed
The situation is accordingly for the self-employed and freelancers when they receive compensation for items used for their job. If a liability insurer replaces the laptop after the coffee bath, the self-employed or freelancer must take the compensation into account in his company's accounting (as negative operating expenses).
Property owners may also have to pay tax on money from the insurance - for example, if the money comes from rental loss insurance. This pays if the rented apartment is uninhabitable for a long time after a fire, for example, and reimburses the landlord for the lost rental income. It is similar with the practice insurance that doctors or lawyers take out, for example. With these two insurances, the payment for the insured is also considered income. And that has to be taxed.
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