You have sufficient evidence of where the proceeds came from since you had a lawsuit; you do not need anything further from the manufacturer. If it ever was questioned or asked about by the IRS, your legal documentation and court documentation would be more than enough to satisfy their inquiry.
Lemon law settlements are only taxable for the portion of your settlement received that exceeds your loss. You gave your figures of the settlement and the original cost of the vehicle, but not the fair market value of the vehicle at the time you bought it.
Use this formula to confirm it should be non-taxable:
PURCHASE COST (34,200)
- FMV OF "LEMON"
= LOSS
Now compare the loss figure above to the settlement you received. Any amount over the $20,300 received is taxed. If your loss exceeds the amount received, then it is non-taxable.
If there is a portion of it that is taxable, then just adjust your negative number input in your Miscellaneous Income section so you are only being taxed on the correct amount.
Please comment back with any further questions and we will assist you further.
@malcoman
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