Settlement from brokerage for stock not sold as instructed and loss incurred. Reported on 1099 box 3.

Forum|Forum|5 years ago
March 11, 2021
9 replies
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We received a settlement from a brokerage firm to compensate us for losses incurred when inherited stock was not sold as instructed. We received a consolidated tax statement summary saying the amount was being reported on 1099 box 3 but did not actually receive a 1099. We should not have to pay taxes on a settlement for inherited stock that lost it's value due to a mistake by the broker. How do we report this on Turbo Tax

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Best answer by Cynthiad66

And they are correct. If you reported the loss on your otherwise taxable inherited stock, then you have to report the income. The general rule of taxability for amounts received from settlement of lawsuits and other legal remedies is Internal Revenue Code (IRC) Section 61 that states all income is taxable from whatever source derived, unless exempted by another section of the code.

The basis of the stock is not the value of the stock when transferred to Fidelity. I don't know what the broker used but your basis for the inherited stocks is the value of the stock on the date of death.

The settlement should be shown as on the Form 1099MISC you received. Settlement money and damages collected from a lawsuit are considered income, which means the IRS will generally tax that money, although personal injury settlements are an exception (most notably: car accident lawsuits and slip and fall claims are nontaxable).

Please see the link below for additional Information from IRS>

Tax Implications of Settlements and Judgements etc.

DaveF1006

Alumni - Intuit

It depends. At this juncture and still time, I would wait until the 1099 is received. More than likely, it's a 1099-MISC. Check your consolidated statements to see if the 1099-MISC is included in the consolidated statements. I have seen these included in statements but didn't know it was there because it was buried in the statement.

One key point here is that if you have taken the loss as a capital loss on your return, then you would need to report this as income to offset the loss that you previously claimed. Check your transaction on your 1099B to see if you claimed a capital loss on this particular stock.

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S

saerseAuthor

Level 2

We did receive a 1099MISC and in Box B the settlement amount is entered and it shows as taxable income when it is entered into Turbotax. The settlement was for the loss of value of the stock that was incurred due to the subsequent market downturn when it was not sold by the Edward Jones broker at the date instructed. The shares were then transferred into Fidelity account and their cost value became their value at time of transfer. They were subsequently liquidated later in the year at a loss again using the transfer cost as the value. The point is that settlement was for what we would have received tax free as inherited stock liquidation if they had been sold as we directed. We have contacted Edward Jones for a revised 1099 or something and they say that is the only way to report it.

C