Tax,
Insurance
Apr. 22, 2025
Insurance payments, bad faith claims and taxes
Insurance payments, including those for wildfire-related damages or bad faith claims, can be tax-free under certain conditions, but complexities in the tax code, such as the treatment of settlements and the IRS's evolving interpretations, make it crucial for taxpayers to carefully navigate insurance recoveries to avoid unintended tax liabilities.
Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
Some types of insurance payments are treated as tax-free by the IRS. For example, if you pay for car insurance and your insurance carrier later repairs your car after an accident, the amount of the repair bill is not attributed to you as income. The same concept can apply in some other areas too. For example, with the recent wildfires, there is an understandable focus on insurance coverage.
The tax code allows taxpayers to exclude from their income ...
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