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I recently had a car totaled. The payout was more than the amount I paid for the car while I bought it. What are the tax implications on this. What kind of tax (if any) I need to pay on the profit? Also what kind of tax it will be i.e. short or long term capital gain tax?

I live in Washington state.

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    I don't think that insurance payments have any tax consequence. – RonJohn Jan 26 '18 at 18:35
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    @RonJohn Thats the case usually but i am not sure what are the laws when the payout is more than actual value of car. Some forums says that you are supposed to file the gain as capital gain. but i am not sure. – funkyme Jan 26 '18 at 18:38
  • How much gain did you realize? – Hart CO Jan 26 '18 at 18:54
  • Was the payment more than the cost to replace the vehicle? – The Photon Jan 27 '18 at 4:19
  • @BenMiller yes, WA means i am asking this in context of Washington state. – funkyme Jan 27 '18 at 17:30
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In general, there are no tax consequences when you receive an insurance payout for a totaled vehicle. The reason for this is that very few cars appreciate in value, so it is generally assumed that the car insurance companies will pay out the proper replacement value and that the value will be close to what you paid, or less (so capital gains would not apply). It's not uncommon for insurance payouts to be slightly higher than what you paid, and if that happens it just means you get a good deal on the car.

There are certain vehicles that do significantly appreciate in value, though generally they are specific desirable classic cars that are usually at least 20 years old, are in excellent condition, and have low miles. If you sell that type of car (or collect an insurance payout) for a significant profit you would pay capital gains unless you roll the profits into another investment vehicle. Further reading here.

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