Insurance proceeds are not taxable income. To correctly report this Form 1099-MISC, first you need to delete your original entry. The 1099-MISC topic will present a summary of all forms entered. Use the Delete button beside the entry you need to remove.
Now re-enter the 1099 as described by Expert ColeenD3 above. To report the expense you paid with these proceeds, enter another 1099-MISC with a negative number in the same income box as on the 1099 you received from the insurance company. This will result in zero taxable income, which is correct for your situation.
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