how to enter homeowners insurance claim check

wrote

I said "may" :). This is a complex area, too much so for this forum, and the limited information in your OP.

Generally, you have a gain that *may* be taxable if the insurance proceeds are more than the cost of your replacement property. The gain can be postponed (for 2 years?? -- I would need to look it up) if you eventually purchase replacement property of at least the cost of the insurance settlement. Also note I said "generally": There are lots of exceptions depending upon the wheres, whens and whys.

Is this supposed to be humor? I hope so.

IMO, it's fair. Profiting from a loss is not fair to the insurance COs -- or any of us who incur higher premiums as a result of opportunists.

I am astonished at the number of people who do not understand this - or who do not give a damn about it. And frankly, I am sorry to say, even a few people that I consider friends do not think this important. Thanks for reminding.

Ahh, the wonderful graphs and reports in Q are so quick to show that over

40% of all of my real estate business expenses go to pay casualty insurance premiums! Depending on the provider, I see increases from 12% to over 25% per year. Much of that goes with living on the Gulf Coast (ohh, and this is predicted to be another bad hurricane season!), but the statistics show that much of the increases are due to dishonest insureds.

The converse is also true. I had to work quite hard to get my Insurance Co to pay even 1/6 of my damage. While a 100% may not have been "fair" neither is selling a policy that pretends to protect and does not.

However we get off topic.

This is partially correct, but either too detailed or not detailed enough. The asset surely changes value as a result of both the original incident and any repairs. This must be accounted for in the asset the account.

The value of the change has little to do with what the insurance company says since they use their own strange determination of what is covered and what it is worth and what they will recompense.

You should more properly use a seperate clearing account to handle the insurance-related transactions and only enter into the asset account the loss due to the event and the net value increase due to the repairs. For simplicity, however, you CAN use the the asset account for the clearing transactions.

Given how tight insurance companies are, you have to be a real crook to generate taxable income--but then a real crook would not worry about reporting it. So that in general is not a problem. On the flip side, you may benefit from filing a casualtly loss on your income taxes for the unreimbursed part of the loss--in which case you need to track things carefully.

I

"vodil" wrote

Although I'm certainly open to other's ideas, as well as the concept that there are various ways of handling this issue -- some more "right" than others, depending upon individual circumstances -- I still stand by my response to you: That it is inappropriate to use the asset account to show insurance and repair transactions.

My post was only directed to you -- not the OP, who doesn't care to reflect in Q the transactions as they really reflect the insured's finances and portfolio.

I agree, and...

...This was the purpose of my post to you. In fact, if you reread my post you will see that I have stated just that.

Not sure what you mean by "strange", but that may be for a different forum.

There are certainly various ways to handle this issue. But I believe the only correct way(s) is to reflect what happens in R/L. You have failed to convince me that your method does this.

Obviously you have had some bad experiences with insurance COs. I have filed many dozens of caims on behalf of my real estate businesses. I have found that a settlement is either fair or it isn't; an incident is either covered or it's not. Yes, I understand that there are miles of legalese, exceptions and "outs" in the policies. But when you signed the policy, you agreed to its contents, whether you took the time to understand them or not.

If a settlement doesn't appear to be fair, then it has always been a simple matter to prove it. Sometimes, in the process of "proving it" you learn that the settlement was fair after all.

In my experience, I have always concluded that the settlements were fair, even if I wasn't pleased. And, more often than not, it would have been rediculously easy for me to profit from the settlements.

I had a case last year where an iron sewer pipe collapsed under a rental house with a slab foundation. The repairs required tunneling under the house slab to replace the collapsed section. This cost over $12K to do. At first, the insurance CO said that there was no coverage for this incident. But, in reading the pertinent section of the policy, I discovered that the incident WAS covered if the collapse caused interior water damage due to a backup. Since this was the case, it turned out that I received compensation to replace the defective section of the pipe.

Last year a tornado caused slight damage to a roof on a rental. In reviewing the insurance settlement proposal, as well as three estimates from contractors, it was clear that the CO underestimated the number of squares of shingles. I called this to their attention and they made it right. Did they make this "mistake" on purpose? I don't know, but it wasn't difficult to resolve.

I don't know what happened in your case, but I'm curious, and perhaps if you're willing to share your experience I'll learn something and we can use it as an example for how to show the transactions in Q.

I disagree. I see it as a problem -- a big problem that happens frequently.

On this, I completely agree.

I've had contractors tell me the insurance adjuster will give me about $.25 on the dollar. The first contractor who came to give me an estimate (who I've used twice for renovations before) laughed at the adjuster's prices, never sent me an estimate and does not return my calls. I've gotten a second estimate which seems too low, but it doesn't include everything the adjuster "allowed" me and the language is a bit vague so I need to clarify if their definition of "patch" is the same as mine, among other things.

I did wonder if I might be able to claim the unreimbursed part of the loss, assuming that the majority of contractors are going to be higher than what I got and that I had a $1000 deductible. My car has just taken its second hit this year (while parked) and I have no idea how much it will cost to fix but also have $1000 deductible on it.

I wasn't planning to be a crook about anything. Generating taxable income out of this mess just never occurred to me. I haven't had any homeowner's losses before and my mind was on trying to fix the problem (which means first get a contractor who will even take me seriously, since they only want to do big jobs these days) . Having so many people tell me Iwas going to get ripped off by the insurance co, it was a far cry from my mind that I could actually end up creating income, on the slim chance that i might get a lower estimate.

Read your policy. Is the loss fully covered (other than the deductible)? If so, show the contractors' estimates to the ins. Co. If depreciable amounts are withheld, you will recover that amount after the repairs are completed.

BTW, I don't think you should be showing the contractors your adjustor's paperwork, at least not where they can see the settlement figures. Let them come up with their own, unbiased figures. Do this by showing each contractor an identical list of your repair requirements, similar to the adjustor's, but sans the dollar amounts. When you do this, the contractors will probably say they recommend doing "this while we have that exposed", etc. Get them to price that stuff out separately.

(snip)

Yes, your tax preparer will need the pertinent info. Depending on your situation, you may be able to carryforward part of the loss to a future tax year (or a past one) where you will be able to receive the most tax benefit.

(snip)

This is probably the key info here. If you don't have replacement cost coverage then you are SOL!

Rick,

I had come to the same conclusion about showing the adjustor's report to the contractor. I'm not sure why, but I suspect it had something to do with the disappearance of the contractor who I used before. I didn't expect them to work to the $ amount of the adjustor, and thought that it would guide them to the repairs in a functional way, but my gut tellls me it turned them off, although I can't quite say why. I didn't give the second contractor anything to go on except his own visual inspection. Now I have an estimate but we need to clear up the definition of terms like "patching", etc to make sure we are talking about the same kind of work.

jo

I do have replacement coverage. The adjustor also said to have the contractor call him if he disagreed with anything. I kind of doubt that any contractor is going to fight any battles for me, but something in writing should hopefully suffice.

The contractors in the neighborhood didn't even ask what kind of coverage I had before laughing about what I coudl expect to get back from insurance. There seems to be a war on between the two factions.

jo

Rick,

Since you are obviously well versed in this area, how does/should it work when the adjustor has given you an allowance for, say, redoing a wall with sheetrock, but your contractor says it isn't necessary, he can make it look as good as new with patching/taping, whatever, thus saving money in one area that may be necessary for a higher cost in another?

If you don't repair exactly the way the adjustor has outlined, are you still eligible for the depreciable items. It doesn't amount to much money, but I don't know if the adjustor looks at at exactly how the work was done and can disallow the depreciable amount based on a different approach being used. Do they actually come back and look at the job or just rely on your say-so and perhaps the contractor bills?

wrote

I no longer have your OP on my newsreader, but I believe you said this was a flood loss? Be careful with shortcuts on that! I don't know enough details other than to give you a very general answer. If it got wet and didn't completel dry out within an hour, replace it. The reason is the possibility of mold. If the water went above your lower plate, then you want to replace everything that got wet. This includes the insulation in the exterior walls. It's common -- and acceptable -- for contractors to replace the gypboard (Sheetrock is a brand name) up to a certain elevation. So they might replace only the lower 4'. If the walls are textured, you will never be able to tell, if the contractor is reasonably skilled.

You need to replace the depreciable items in order to receive the compensation. In the case of a flood, I imagine that would be the flooring and appliances, which you probably would want to replace.

It depends on who the Insuror is. The last couple of claims I had, I just faxed over the receipts.

Is there a mortgage on the property? If the claim is above a certain amount, and the Mortgagee is identified as an additional Insured, then the Insuror will make the settlement check(s) out to both you and the Mortgagee. In this case, you usually send the check to the Mortgagee (use Certified mail) and they will endorse it and send it back -- IF you're in good standing with them.

If the claim is big enough, and the Mortgagee is so-inclined, they may issue the payments to you in draws after their own inspections. I had that happen last year, but it was a fire job (tenants tried to heat the whole house with the fireplace) with over $60K of damage. The Mortgagee issued me 3 draws pending inspections.

I would be very suspicious of a contractor who says he can do something different for less than the adjuster gives you. The insurance companies make money by "cost control" and that means giving you the least they can to stay out of court and keep customers from leaving. Therefore, I would expect that there is s very good reason for replacement (e.g. mold).

While, in general, the insurace company monety can be looked on as a side-bet unrelated to the actual damange and repair, if you don't bring the damaged area back up to serviciability they could deny future claims.

Damage was not from the kind of flood you mean, altho my psyche reacted the same way. A pipe started leaking under a second floor bathroom floor. I didn't detect it until I happened to be in the basement (2 story row house) and saw water dripping from a shaft that enclosed the risers. I'm not sure of the exact order after that but I soon discovered that the kitchen ceiling and one wall had absorbed a lot of water and it ,of course, blistered the paint. The wall was common to the livingroom and it shifted and cracked plaster and sheetrock there also. There was no damage to the bathroom until the plumber came in to stop the leak, because he could not reach it thru the kitchen ceiling.

I already have a check for slightly more than $4K from the insurance co. The depreciable items amounted to about $300 or so. I had $1000 deductible. The adjustor had given me an allowance for sheetrock (sorry, but I've always used that term) which, I believe covered both the kitchen and living room. The contractor doesn't think I need to resheetrock the livingroom side of the wall, so this is the kind of distinction I'm talking about. The kitchen ceiling will be "patched" halfway back because the water followed odd paths and got back that far. Fortunately for me, this path saved a tall cabinet in the kitchen. The water went everywhere else but straight down on top of it. Saved the cabinet but damaged more wall area. Since it would have been very likely impossible to exactly match this cabinet after 20 years, I guess I consider myself fortunate.

jo