Check with the attorney, if the settlement was in regard to the lemon law, that would be loss of value.
This means the amount of the award reduces the value of the vehicle.
If you paid 20,000 and the award was 5,000, your new basis is 15,000.
If you sell for anything over 15,000 you will need to report a capital gain.
Sell for 15,000 or less and there would be nothing more to report.
If you receive a tax form reporting the amount of the award, enter that form (usually 1099-MISC)
Next, go to the very last option for income
"Less Common Income"
"Miscellaneous Income, 1099-A, 1099-C" START
select "Other reportable income" START
Enter "Reduced Basis" as the description and a negative (place a minus sign in from of) the adjusting amount.
Both the award and the adjustment should be on Schedule 1 line 8z resulting in zero income.
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