Taxpayer had damages from Hurricane Ike. Of course TWIA did not pay the insurance so he filed a lawsuit. This year 2010 they settled out of court for $62,000. The mortgage company received $12,000 and released the money to the taxpayer as he made the repairs. The lawyer received $25,000 and the t/p received $37,000. The lawyer told him he would not receive a 1099 because nothing was taxable. Everything I can find says the $37,000 is taxable. We have no paperwork to specify what anything is but there are no medical claims of any kind related to this claim. thanks.bc
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Wasn't the claim to pay for damages to his home? That would not be taxable.
I thought the only time a settlement was taxable was if it was specified to cover lost wages.
Linda, EA -
It will be taxable in this case (or a portion of it anyway) because he deducted a casualty loss in that year. See other post, this message was posted twice.Last edited by Burke; 02-15-2011, 04:21 PM.Comment
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The only legal settlements that aren't taxable by default are those for actual physical injury. Generally, amounts used to make the recipient whole can then be excluded.Originally posted by oceanlovin'ea View PostComment
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Lemon Law Settlement
I have searched every publication that applies, the Taxbook and forums, of whether a lemon law settlement is taxable.
Here is the situation: Taxpayer buys a brand new truck in 2009 ($27000), after many months of repairs that were all covered under the manufacturers warranty, decides ( in 2010) to be done with this lemon and tries to get the manufacturer to put them in a new vehicle.
manufacturer says NO, so the taxpayer contacts a lawyer and wins the claim for repair costs ($2900 was the taxpayers portion) . A few weeks after the taxpayer cashes the settlement check, the manufacturer contacts the taxpayer to put them in the same make and model truck as a trade. But their payments would start all over again.
Is this taxable?
While researching in one of the pubs I found,
" Loss-of-Use OR Loss-In-Value of Property-----settlements may be taxable if the settlement exceeds your basis in the property.
{ Property settlements that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your return}
{ When property settlements exceed your adjusted basis in the propery, the excess is gain. }
I think I am reading too much into this. ( tend to do this in March) Last year when they were waiting on the settlement I told them its taxable, but Attorney fees would be deductible after the 2% floor.Comment
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