To all the Turbo Tax Alumni,
I've read several of the recommendations on how to report the gain or loss on a cash and keep lemon law settlement and I'm still not certain on how the gain/loss works. Some of the posts contradict each other on their advice.
My situation: I was awarded a settlement under the state Lemon Law for $40k (including legal fees) on a vehicle with an original FMV = $46k. Some of the advice in this blog recommends reporting the gain as a difference between the original purchase price $46k and the FMV at the time of the settlement which was about $19K less the amount of the settlement :($46k original FMV - $19k FMV at time of settlement = $27k loss), so $40k settlement - $27k loss in value = $13k taxable income. There is no FMV value declared in the settlement because the vehicle was not traded or 'turned in' to a dealer. It was a cash and keep situation.
Robert G. from earlier in this blog chain indicate that it's the difference between the original FMV purchase price and the settlement amount ($46k original FMV - $40k settlement = $6K loss).
So you can see that depending on who's advice you follow it can result in an entirely different situation, where I owe taxes on $13k or I have a loss of $6k.
Can anyone help? I had also paid Turbo Tax for the online assistance last tax season and asked this same question and all they did was search this blog for an answer so that tells me that Turbo Tax support may not know either, especially if there are multiple versions of the 'correct way' to handle this situation. I'm hoping that I can get a definitive answer. Thank you!
