No. That refund is not taxable income. This was a refund to make you whole again and did not result in a gain so it would be treated similar to an insurance payout. You will still need to enter the 1099 since you received it, but you will then remove the income so you are not taxed on it.
To enter the 1099 Misc as non-self-employment income take the following steps:
- Income
- 1099-MIsc under Other Common Income
- Enter the information from the 1099-MIsc
- Continue through and say the work does NOT involve work that is like your main job
- Select the years you received it
- Say no, to did this involve an intent to earn money
Then you will take the following steps to remove the income:
- Income
- Less Common Income
- Miscellaneous Income
- Other Reportable Income
- Answer Yes to Any Other Taxable Income
- Enter the description such as 1099-Misc received for refund for faulty flooring
- Enter the amount on the 1099-Misc as a negative number.
Be aware, the $4,000 that you are out is not tax deductible. This is considered a personal expense for your property which is not deductible.
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