Do you have to pay taxes on a totaled car?

No, you do not have to pay taxes on a totaled car in most states. There are no taxes on any settlement you receive from your insurance company, and most states require insurers to pay the sales tax toward a comparable vehicle that replaces your totaled car as part of the company’s settlement payment.

You will typically receive an insurance settlement for a totaled vehicle if you had collision, comprehensive, or gap insurance at the time of the accident. If someone else was responsible for the accident, their liability insurance should cover your totaled vehicle.

If you decide to keep your car after it is totaled and obtain a new registration for it, you may have to pay a vehicle property tax. A few states and localities charge a vehicle property tax for all registered vehicles.

Key Things to Know About Taxes on a Totaled Car

You may still owe property tax.

If you live in a state that has a vehicle property tax and your totaled vehicle is currently registered in your state, you will have to pay property tax for your vehicle unless you have already sold or replaced it. However, the amount you owe depends on the current value of your vehicle, so if you still own your totaled car, the taxes will be lower than before it was totaled.

You may be able to claim a deduction.

You may be able to claim a casualty or theft loss on your federal income tax return if you itemize your deductions instead of using the standard deduction. Your vehicle must have been damaged by a sudden, unexpected, or unusual event such as a flood or hurricane. In addition, if you receive reimbursement from an insurer, you must reduce your reported loss by that amount.

Your insurer may pay the sales tax.

If you carried collision or comprehensive insurance at the time your car was totaled and the accident was your fault, you can file a claim with one of these types of coverage, depending on the circumstances. If your claim is approved, your insurer will likely offer you a cash settlement equal to your car’s actual cash value (ACV) plus any sales tax, minus any deductible. Your insurer may also offer you a comparable replacement vehicle with any applicable sales tax paid instead of offering you a cash settlement.

Insurance companies typically reimburse you for the cost of the sales tax on the ACV of the original vehicle, not the sales tax on the new vehicle. If your state does not impose a sales tax, then your insurance company will not have to pay for or reimburse you for sales taxes after your car is totaled.

Your insurance payouts are not taxable.

If your insurer reimbursed you for the value of your totaled vehicle, that payout is not taxable. The money you receive from your insurer after a totaled car is not reported as income.

To learn more, check out WalletHub’s guide to totaled cars.