I have insurance money for roof repairs on a home that I'm about to sell...

I am not 100% positive on this but I believe you would have to report the insurance proceeds as taxable income to the extent you do not use them for repairs.

You also run the risk that the buyer will ask questions (justifiably) and send their guy out there and decide it will take a lot more than $6k to fix. Hell, they may push for a new roof as a condition to buy

Congrats on the casualty gain. Better hold back some money to pay the tax on that $6K.

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on the casualty gain

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What's the gain? He's selling the house at a lowered price (presumably) because it has a damaged roof. All the insurance money does is make him whole. IMHO. YMMV. And, even though I studied tax law under Susan Kalinka at LSU Law, I am nowhere near an expert. Hell, I pay a CPA to do my own taxes.

All of that said, this is the same advice I gave my dad about whether he should report insurance money on a storm claim as income. In his case, the repair actually cost less than the insurance appraisal. I think that even after the deductible was satisfied and the contractor paid that he had $2K left over. In my mind, the insurance company's appraisal reflected the cost of returning my dad's building into its pre-storm condition, including things like loss of use, lessened value, etc. There definitely was no "income" or realized gain. It would be no different than being involved in a fender bender where someone else struck your car. You could choose to repair it using insurance proceeds, or, if the car remained road-worthy, you could pocket the money as a payment received to make you whole. Financially, you would not be better off because the car's value would have been depreciated by an amount (minimally) equal to the cost of repairs, so the proceeds would not be a windfall (or "gain").

Again, not legal advice, consult your own CPA, tip your waiter, and YMMV.

Put the roof on and increase sales price 10k.

Net positive for you and you'll sell house easier and faster.

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you would just give the $6k to the buyers to put toward a new roof or return the money to insurance company. I am not judging whether you should keep the money or not, but don’t act like you are boxed in with no other options.

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To me a lot of it depends on if buyers are purchasing house “as is” or if inspection has been done and they expect the roof fixed.

I would explain the situation and offer to knock 6k off sale price or just give them the money if work hasn’t started by the time of closing if they expect roof to be fixed

Its not insurance fraud. He paid premiums for years so that is something were to happen the insurance would pay for the cost of damages. A storm damaged his roof, and they paid him out.

The insurance can't make you use the money to fix the damages, they just may drop you or change your policy if the roof isn't repaired. He is selling the house so neither of these is an issue.

Sell the house as is. If they don't want to buy the house for the price with the damaged roof, they don't have to buy it. But in this market, someone else likely will.

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Pretty sure that would be insurance fraud

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No it isn't. It would only be fraud if he got paid for these damages, didn't make repairs, then tried to file a 2nd claim for the same damages after a subsequent wind/hail storm. If he pockets the insurance money and sells the house as-is, then the claim payment he received is compensating for the loss in market value due to the unrepaired damage. He just wouldn't recoup any recoverable depreciation if he sells prior to making the repairs.

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THRILLHO

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Shoot me an email. Matt@elitecontractorsla.com

We should be able to help you out.