1099-NEC - Damage Award - how to make it non-taxable in Turbo Tax

[RNathan]

A car manufacturer issued a 1099-NEC for the damage award he paid for the new vehicle that was declared as a lemon under the Lemon Law. Turbo Tax treats this as taxable when it should not. How do we report it but make sure it is not taxable in Turbo Tax as the amount barely compensates the damage?

[MaxA1]

Enter an expense line item for the same amount as the 1099-NEC to offset the income.  Lemon law settlements are generally not taxable when they simply refund the purchase price or replace a vehicle, as this is considered being "made whole". However, portions of a settlement covering punitive damages, civil penalties, interest, or compensation for lost wages are considered taxable income.

[RNathan]

Thank you. Where do I enter this expense item (under what heading and in what schedule) so that Turbo Tax does not just ignore it or rejects it? 

[AmyC]

After you enter the 1099 income, remove it by following these steps:

1. Open to federal income
2. Scroll to the bottom/ show more income
3. Locate Miscellaneous Income, 1099-A, 1099-C, Start
4. Scroll to the bottom
5. Other reportable income, Start
6. Other taxable income?
7. Select YES
8. Description damage award 1099-NEC
9. Amount, enter your negative amount with a minus sign in front, for example -3600
10. continue