Get your taxes done using TurboTax

this is from researching the subject.  My comments are underlined

For tax purposes, reporting a lemon law settlement involving a leased vehicle can be a bit tricky, especially when legal fees are included. Here’s how you can handle it:

1. Understand Tax Treatment:

   • A lemon law settlement is considered a reduction in the purchase price of the car.
   • Only the amount that exceeds your loss (i.e., the difference between the settlement and the fair market value of the ‘lemon’ at the time of purchase) is taxable.
   • Attorney’s fees are not deductible and must be included in the settlement amount when comparing it t...¹².

2. Reporting the Settlement:

   • You’ll receive a 1099-MISC for the settlement.
   • To report this income in TurboTax, follow these steps:
     • Search for “1099-Misc” in the search box.
     • Select “Jump to 1099-MISC” and enter the information from the form.
     • Indicate that this was money from a lawsuit settlement.
     • When asked if you have another 1099-MISC, say no.
     • To offset this income, go to Income and Expenses:
       • Under “Less Common Income”, select “Miscellaneous Income, 1099-A, 1099-C”.
       • Then choose “Other reportable income” and enter the lawsuit amount as a negative number to offset the gain.
       • The income and the offset should appear on Schedule 1, line 9.   
       • This part is incorrect unless you are self-employed. Your offset in my opinion, would only be the lease payments you made. In effect, you're going to pay income taxes on the fees the lawyer got. 

Here are other links that discuss lawyers' fees in lemon-law settlements.

https://ttlc.intuit.com/community/retirement/discussion/lemon-law-settlement-taxable/00/713428/page/...