I received a payment from a lawsuit settlement which was reported by the Home Builder on form 1099-NEC. The payment was for reimbursement of housing expenses while repairs covered under the builder's warranty were being made to the home. I entered the information from the 1099 and selected the uncommon situation shown as "money from a lawsuit settlement" and "No" to the question regarding back wages. The next screen is the 1099-NEC Summary which shows "Missing Info!" under the heading "Relates to". Is there another form that needs to be completed that would then "relate to" this 1099. This payment should not be considered income as it was a reimbursement of expenses incurred.
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Did you do work for this builder or is this a settlement of a lawsuit regarding work they did on your home?
If you didn't do any work to earn the payment, then they shouldn't have reported the amount on Form 1099-NEC. Check to be sure the form wasn't a Form 1099-MISC, which is the correct form to use.
Check the terms of the legal settlement. Whether any of the amount is taxable depends on the type of settlement proceeds you received and what they represented. If you received punitive damages, this would be taxable income, and often a Form 1099-MISC would be issued.
Property settlements for losses in the value of a property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement. If the property settlement exceeds your adjusted basis in the property, the excess is income.
See IRS Publication 4345 for more information.
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