Class action lawsuit settlement for defective Product

[RGHONDA]

What is the name of your state? OHIO

In 2005 I received a $7600 settlement from a class action lawsuit on Masionite Omniwood Siding (this is simulated wood siding for a house) that I have on my home that is defective and falling apart on my house. To my surprise I received a 1099-MISC in early 2006 with block 3 filled in for the amount of my settlement. I've called the IRS a few times and each time they say that this falls under income from Court Awards and Damages, Item 5.b "Breach of contract" in Publication 525. I am having a hard time swallowing the fact that I have to pay federal tax on this, since I already paid for the product as part of the home purchase in 2000. The amount which I was paid as part of the settlement is not going to be enough to pay for the cost of having my home resided this year. Is it true for all defective product class acion lawsuit settlements, that any payment is always considered income??
Thanks for any help/advice

[LdiJ]

Compensatory damages are not taxable...punitive damages are. Therefore its important to know how the settlement defined the damages (the award you received).

However, its not uncommon for a company to deliberately misclassify damages or report them incorrectly on a 1099.

Get a consult with a local tax professional.