I assume this was a lemon settlement? The actual damage, sales price of the car with sales taxes, are not taxable. However additional damaged and attorney fees are taxable. In your example $46,400.80 would be non-taxable and $123,796.70
would be taxable. Attorney fees are only non-taxable for personal injury cases. Unfortunately, this always means that after paying taxes and deduction of attorney fees, not much remains of the additional settlement. If the car was a business asset however and the lawsuit was filed by the business, then attorney fees can be written off as legal fees of course.
