home sale gain exclusion and receipt of settlement funds

[lisay]

I recently sold my house and had a qualified gain of ~$350,000.  Due to certain circumstances I may receive an additional $150,000 from a settlement from the realtor involved with the transaction due to a breach of fiduciary duty, specifically pertaining to the sale of my home.  This money will likely be paid to me from his insurance company.   First, does anyone know how this settlement amount will be reported to me? if it will be considered taxable? or can I add this amount to the amount I am considering as gain from the sale of my home, ie; report a total gain of $500,000.   Any thoughts are welcome.

[tagteam · Accepted solution]

This is not an inconsiderable sum of money and, as such, you need to consult, in person, with a tax attorney and/or an experienced tax professional (both for expert guidance and liability concerns).

Otherwise, and generally, if there is no nexus between the settlement amount and the sale of your main home, the Section 121 exclusion has no applicability.

[lisay]

I am potentially relying on the fact that there is a nexus, in that the realtor purchased the house himself and then sold it the next day to a client, for $150,000 more than he paid/purchased from me.  

[tagteam]

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@lisay wrote:

I am potentially relying on the fact that there is a nexus, in that the realtor purchased the house himself and then sold it the next day to a client, for $150,000 more than he paid/purchased from me.  

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I understand and I suggest you seek a legal opinion that bears on that issue. 

If you have an attorney handling your case against the realtor, you can ask your attorney directly (or ask for a referral if the attorney is not knowledgeable in tax matters).

Otherwise, if you receive the wrong kind of tax reporting statement as a result of the settlement (e.g,  a 1099-MISC), that will be problematic.