A lemon law settlement is only taxable for the part that exceeds your loss, which is the amount you were paid compared with the fair market value of the 'lemon' at the time you bought it.
You need to report the 1099-Misc income to avoid getting correspondence from the IRS.
So you should enter it twice, once as a positive number, and once as a negative number to offset the income.
- To report the income in TurboTax, enter 1099-Misc in the search box
- Select Jump to 1099-MISC
- Enter the information from the 1099-Misc
- On the Does one of these uncommon situations apply? page select This was money from a lawsuit settlement
- You will then be asked Do either of 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.
- Under Miscellaneous Income, 1099-A, 1099-C, select Other reportable income.
- You will be asked for a description and amount, enter the lawsuit amount as a negative number to offset the gain.
The income, and the offset to income should appear on Schedule 1 line 9.
