How to declare auto insurance compensation on your tax return

Auto insurance compensation must be included in Income Tax even if it is exempt from taxation.

When declaring assets for Income Tax, it is quite common for doubts to arise regarding the vehicle.

Especially when a car is stolen or a total loss, people get a little confused about how the information should be entered so that it doesn't appear as an error.

Insurance compensation is exempt from Income Tax, but that does not mean that it should not be reported.

This happens because it is not an increase in assets, just the replacement of an asset.

If you have been through this situation and had your vehicle compensated by the insurance company, understand how to correctly fill out your tax return.

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Why should I declare auto insurance compensation on my income tax?

There are rules for people to file their income tax return, including having a minimum income, owning real estate, financial investments and others.

Even if the person does not fit into any of these situations, when receiving compensation for a car worth more than R$40,000, they will receive an amount that needs to be declared, even if it does not generate taxation.

Otherwise, this can impact income and cause the person to be subject to “fine-tooth comb” and have to pay fines and even be held liable for tax evasion.

The declaration of insurance compensation

The declaration must be made on the 'Exempt and Non-Taxable Income' form, and this rule is valid for all types of insurance.

However, this only occurs when the amount paid by the insurer does not exceed the value of the asset, not indicating a new income.

You must open a new item on the form and choose code 3 “Capital of insurance policies or sum paid upon the death of the insured, insurance premium refunded in any case and sum received from private pension entities as a result of death or permanent disability”.

Furthermore, if the vehicle has been stolen or has been a total loss, it must be “written off”.

The declaration must be made and in field 21, “Land motor vehicle”, the itemization must state what happened to the car and the amount paid by the insurance company.

Since on 12/31/2017, as the vehicle had already been damaged, the value must be zeroed.

In addition to informing the amount received by the insurance company, if it was used to purchase a new car, this information must also be included.

When declaring the new vehicle, the origin of the money must be stated in the itemization.

However, it is not enough to just know how to correctly fill out the insurance compensation form on your income tax return; you need to pay attention to the deadlines.

Delaying tax filing can result in paying fines, so don't leave it until the last minute.

Also take the opportunity to take out car insurance, after all, this is the only way you will be able to declare the receipt of compensation instead of having to bear a loss.