The taxability of a legal settlement depends on the type of settlement proceeds you received and what they represented. If you received punitive damages, that would be taxable income, and often a Form 1099 would be issued.
Property settlements that compensate you for a loss in the value of your property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return.
However, you must reduce your basis in the property by the amount of the settlement. If the property settlement exceeds your adjusted basis in the property, the excess is income.
See IRS Publication 4345 for more information.
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