Get your taxes done using TurboTax

You have several factors here.

• If you sold or traded the vehicle as part of the settlement, you may have a capital gain. Determine your basis plus any improvements to calculate the gain.
• However, if the settlement is simply a reimbursement for the purchase price and related expenses, it may not be considered taxable income.
• Lemon law settlements often include compensation for the purchase price of the vehicle, any additional expenses incurred (like repairs), and possibly punitive damages. The tax treatment can vary based on what the settlement covers. You may want to contact your lawyer.

If you want to enter the 1099-MISC as a capital gain, you would enter the vehicle on Sch D, similar to a stock sale. In the program, select Other, like second home to make the entry. Enter the basis and sales price along with the purchase date and sale date.

The rest of this is not necessary but could help the IRS match up forms.

To be safe, you could also enter the 1099-MISC under 1099-MISC income and then subtract the money back out under other income with a description like 1099-MISC lawsuit reported as capital gain.

• To enter the 1099-MISC, follow the steps for What if I receive 1099-MISC box 3 income for my crypto? except change crypto to lawsuit.
• To subtract the income: 

1. go to the federal income section
2. scroll to the bottom
3. Miscellaneous Income, 1099-A, 1099-C, Start
4. Scroll to the bottom
5. Other reportable income, Start
6. Other taxable income?
7. Select YES
8. Description  - whatever you want to say
9. Amount, enter negative amount
10. Continue