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Taxable or not?

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gawm

Senior Member
What is the name of your state (only U.S. law)? Az
I just received part of a class action lawsuit from home builder because of structural defects in homes they refused to fix. It is not a life changing amount but it is substantial. Is this taxable? Won't have to report until next year if it is. just want to know how much I should put aside. Thanks!
 
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LdiJ

Senior Member
What is the name of your state (only U.S. law)? Az
I just received part of a class action lawsuit from home builder because of structural defects in homes they refused to fix. It is not a life changing amount but it is substantial. Is this taxable? Won't have to report until next year if it is. just want to know how much I should put aside. Thanks!
Someone would have to review your actual paperwork to be certain as to whether or not any portion of it was taxable. Any portion designed to cover the cost of repairs would not be.
 

gawm

Senior Member
Thanks for reply. There was no paperwork. This lawsuit went on for 7 years. Claim forms were mailed out and checks were mailed if you met eligibility requirements which basically was if you own your house at certain date, if you opted out or not and if you mailed claim form back in time.
 

LdiJ

Senior Member
Thanks for reply. There was no paperwork. This lawsuit went on for 7 years. Claim forms were mailed out and checks were mailed if you met eligibility requirements which basically was if you own your house at certain date, if you opted out or not and if you mailed claim form back in time.
It sounds like a payment from an insurance company, or out of insurance proceeds. Most likely it is not taxable.
 

dmcc10880

Member
Would anyone know what form this would be filed on?
If taxable, 1040 line 21 (other income).

Likely it will not be taxable. See IRS Pub. 525.

If there were punitive damages in the settlement, then that portion would be taxable.

Also, if taxable you will likely receive a 1099 next January. And if you do receive one, you should seek the services of a tax adviser.
 

davew128

Senior Member
If taxable, 1040 line 21 (other income).

Likely it will not be taxable. See IRS Pub. 525.

If there were punitive damages in the settlement, then that portion would be taxable.

Also, if taxable you will likely receive a 1099 next January. And if you do receive one, you should seek the services of a tax adviser.
You did notice that the OP started this thread OVER A YEAR AGO, when they stated they had just received the money. No, it won't be getting reported on a 1099 next January. :rolleyes:
 

dmcc10880

Member
You did notice that the OP started this thread OVER A YEAR AGO, when they stated they had just received the money. No, it won't be getting reported on a 1099 next January. :rolleyes:
No need to roll the eyes. Is your comment a statement or question? Either way, no I did not see 2010.

So, let me correct and say "if he received a 1099 in January".

Now, are we happy?
 

gawm

Senior Member
If taxable, 1040 line 21 (other income).

Likely it will not be taxable. See IRS Pub. 525.

If there were punitive damages in the settlement, then that portion would be taxable.

Also, if taxable you will likely receive a 1099 next January. And if you do receive one, you should seek the services of a tax adviser.
I received the 1099 this year. I got a letter with the check saying they would mail a 1099 out regardless of whether it was taxable or not. They would not give a opinion as whether it is taxable or not.

My tax advisor was stumped because he said they reported it as taxable and in his opinion it shouldn't be. He is going to do more research and we'll finish them up next week.

Thanks for quick reply!:cool:
 

dmcc10880

Member
I received the 1099 this year. I got a letter with the check saying they would mail a 1099 out regardless of whether it was taxable or not. They would not give a opinion as whether it is taxable or not.

My tax advisor was stumped because he said they reported it as taxable and in his opinion it shouldn't be. He is going to do more research and we'll finish them up next week.

Thanks for quick reply!:cool:
Yeah, it's a blurry area. Definitely if taxable, you can offset the costs you incurred from the income.

Your tax guy could protest the issuance of the 1099.

You could roll the dice and not include it as income and see if the IRS sends you a letter.

However, if the numbers work just include it as Other Income and offset it with the actual costs you incurred to remedy the defects as well as your share of the attorneys fees in the claim. I'm sure it cost more to remedy and after the attorney's take than what you got from a class action.

I've been there, not a class action, but a 1099 that shouldn't have been sent. We did the last option and all worked out fine. Hopefully it will for you too.
 

gawm

Senior Member
Alright, I think I figured this out. I am not going to report it because of the instructions on the 1099misc form says not to (on page 4.)
Here is the paragraph (part d.)
Other items required to be reported in box 3 include the following
1. Generally, all punitive damages, any damages for nonphysical injuries or sickness, and any other taxable damages. Report punitive damages even if they relate to physical injury or physical sickness. Generally, report all compensatory damages for nonphysical injuries or sickness such as employment discrimination or defamation. However, do not report damages (other than punitive damages):
a. Received on account of personal physical injuries or physical sickness
b. That do not exceed the amount paid for medical care for emotional distress;
c. Received on account of nonphysical injuries (for example, emotional distress) under a written binding agreement, court decree, or mediation award in effect on or issued by September 13, 1995; or
d. That are for a replacement of capital, such as damages paid to a buyer by a contractor who failed to complete construction of a building.

My next question, is it time to find a new tax guy?
 

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