how do i enter on line 24z of Schedule 1 the property damage amount for which I received a 1099 Misc for the full lawsuit settlement amount (settled lawsuit for less than damages)

[TomK2023 · Accepted solution]

There isn't  a specific button labeled "Line 24z," so you have to manually enter an adjustment as you proceed  through the Miscellaneous Income section.

Reporting this "income" will require entering information into two (2) sections of the program.

First...

Enter the 1099-MISC (Lawsuit Settlement) Income:

1. Open or continue your return.
2. Under Federal tab, Click on Wages & Income.
3. Scroll down to "Other Common Income", and Click on 1099-MISC.
4. Enter your 1099-Misc as is (Payer name, EIN, and the amount in Box 3).
5. When asked the "reason" for the money, Enter something like "Lawsuit Settlement for Property Damage."
6. When asked "if it was similar to a main job or if you intended to make money", Select "No."

Second...

Enter Line 24z Adjustment:

1. Open or continue your return.
2. Under the Wages & Income section (Federal tab), Scroll down Less Common Income and Click on Miscellaneous Income, 1099-A, 1099-C.
3. Click on Other reportable income.
4. When asked "if you have other taxable income", Select "Yes".
5. Enter the description "Form 1099-MISC Offset - Return of Capital for Property Damage."
6. Enter the damage amount as a negative number (e.g., -10,000).

By entering the negative amount, the program will "cancel out" the two figures (on your Schedule 1).

The positive 1099-MISC amount will appear on Line 8z.

The negative adjustment will appear on Line 24z (Other Adjustments to Income).

Note: You can only offset the settlement up to your adjusted basis in the property (usually what you paid for it plus improvements). Since the settlement was for less than the damages, you won't pay tax on the principal, but any portion of the settlement labeled as "Interest" is taxable.