Sued and Won

[Stover]

What is the name of your state (Ohio)?
I rented my house to a young lady and her family. I sued her for damages to the house and won. I garnished her job and receive a check about every two weeks.
My accountant told me I will have to claim the money received from the garnishment as income and pay taxes on it. I don't think it is fair that I have to claim money received from the garnishment as income and pay taxes on it because I had to spend my money that I had (already paid taxes on) to repairs to the property. Collecting from her is her just giving me back the money (I already paid taxes) on. It is like she is paying back a personal loan that I made to her only I had to sue her to give me back my money.
If it is true that I have to claim the garnished money as income, is there anyway that I can keep from having to claim the monies as income and paying taxes on it again?
Looking for a solution!

 

[LdiJ]

What is the name of your state (Ohio)?
I rented my house to a young lady and her family. I sued her for damages to the house and won. I garnished her job and receive a check about every two weeks.
My accountant told me I will have to claim the money received from the garnishment as income and pay taxes on it. I don't think it is fair that I have to claim money received from the garnishment as income and pay taxes on it because I had to spend my money that I had (already paid taxes on) to repairs to the property. Collecting from her is her just giving me back the money (I already paid taxes) on. It is like she is paying back a personal loan that I made to her only I had to sue her to give me back my money.
If it is true that I have to claim the garnished money as income, is there anyway that I can keep from having to claim the monies as income and paying taxes on it again?
Looking for a solution!

Your accountant is wrong. You received actual damages. That is not taxable. Had you received money in excess of actual damages then there could be a taxable component. Had you sued for unpaid rent and won, that would be taxable.

 

[FlyingRon]

Your accountant is wrong. You received actual damages. That is not taxable. Had you received money in excess of actual damages then there could be a taxable component. Had you sued for unpaid rent and won, that would be taxable.

I agree with some caveats. If any part comprises interest, that part is taxable. If you deducted the costs of fixing the place that this is compensating you for, you need to go back and amend that.

 

[LdiJ]

I agree with some caveats. If any part comprises interest, that part is taxable. If you deducted the costs of fixing the place that this is compensating you for, you need to go back and amend that.

Just to clarify. If you deducted the costs of fixing the place that this is compensating you for, on your federal/state tax returns, then you need to amend your tax returns to take away those deductions. Hopefully that has not happened yet, since its still January. I agree that any interest would be taxable, but again, interest would be money in excess of actual damages, which I did mention could be a taxable component.

I wasn't being nit picky Ron, I just had to read it a couple of times myself before I was sure what you were talking about, so I figured that the OP might not have gotten it.

 

[tranquility]

Just to clarify. If you deducted the costs of fixing the place that this is compensating you for, on your federal/state tax returns, then you need to amend your tax returns to take away those deductions. Hopefully that has not happened yet, since its still January. I agree that any interest would be taxable, but again, interest would be money in excess of actual damages, which I did mention could be a taxable component.

I wasn't being nit picky Ron, I just had to read it a couple of times myself before I was sure what you were talking about, so I figured that the OP might not have gotten it.

You don't have to amend, you can take it as income under the tax benefit rule.

 

[LdiJ]

You don't have to amend, you can take it as income under the tax benefit rule.

I was assuming that it was all 2015. Certainly if the deductions were in 2014 or any of the money comes in, in 2016 the tax benefit rule would apply.

 

[Stover]

I was assuming that it was all 2015. Certainly if the deductions were in 2014 or any of the money comes in, in 2016 the tax benefit rule would apply.

The damage occurred in 2014. I sued and won in March 2015. I started receiving checks in July of 2015 to present. What do I need to do if anything at all?

 

[FlyingRon]

The damage occurred in 2014. I sued and won in March 2015. I started receiving checks in July of 2015 to present. What do I need to do if anything at all?

Did you deduct the cost of repairing the damages on a prior year's taxes? If so, then this is taxable. If not, only the interest is taxable.
If none of what you got appears to be taxable, you don't need to do anything (Other than hold on to your records in case the IRS questions it).

 

[LdiJ]

The damage occurred in 2014. I sued and won in March 2015. I started receiving checks in July of 2015 to present. What do I need to do if anything at all?

Did you deduct the cost of the damages on your 2014 tax return? If not you do nothing. If you did, then your accountant is right, you have to take it into income, or amend your 2014 return to remove the expense. You do not get to double dip.

 

[tranquility]

The damage occurred in 2014. I sued and won in March 2015. I started receiving checks in July of 2015 to present. What do I need to do if anything at all?

If you deducted the damage on schedule E, I'd put the amount deducted and compensated for (less expense to collect) on the line of other income with "tax benefit rule" as the description and more complete description of the calculation in a statement attached to your return. In other words, let your accountant handle it.

 

[Stover]

Did you deduct the cost of the damages on your 2014 tax return? If not you do nothing. If you did, then your accountant is right, you have to take it into income, or amend your 2014 return to remove the expense. You do not get to double dip.

I am not sure if it was deducted on my 2014 return, I will contact my accountant to find out. If so, I will ask him to admen the 2014 return so that I don't have to claim this money as income and pay taxes on it.

Thank you to everyone that answered this question. Your answers have helped!

 

[LdiJ]

I am not sure if it was deducted on my 2014 return, I will contact my accountant to find out. If so, I will ask him to admen the 2014 return so that I don't have to claim this money as income and pay taxes on it.

Thank you to everyone that answered this question. Your answers have helped!

You are going to be paying money either way. Either you will owe additional tax for 2014 once those expenses are removed, or you will owe additional tax for 2015 and 2016 adding the money in as income. Unless it would produce a better result by amending 2014, its probably easier just to take the money into income in 2015 and 2016.

 

[tranquility]

I am not sure if it was deducted on my 2014 return, I will contact my accountant to find out. If so, I will ask him to admen the 2014 return so that I don't have to claim this money as income and pay taxes on it.

Thank you to everyone that answered this question. Your answers have helped!

The only real reason to amend your return and extend the SOL is if you would lose some benefit from the increase in income now or the decrease in the past. There are any of a number of things that are affected by income limits and percentages and you have to look at your particular situation between the two years. For LdiJ and I (and, your accountant), I suspect a moment looking at your previous return and talking with you about issues this year would guide what is best without running the numbers. If you intend on doing it on your own, you will have to run the numbers and see the difference.