Lemon Law settlement TAXABLE ?

[tamtrinh]

I won a lemon law settlement of 45,000 ( $28,500 actual damage + $16,500 additional damage ( $30,000 x 55%) . It was on the check, $45,000.  The attorney  firm got $13,500 ($30,000 x 45%).  I was able to KEEP the car.  I originally bought the car for 28,500.  What do I pay tax on? 

My case was I KEPT the car. 

Do I have to pay tax on $45,000 or on $16,500 ? 

Please help me.

[MarilynG1 · Accepted solution]

Generally, any proceeds above the price you paid for the car are considered Capital Gains. 

Here's more info on Taxability of Settlements and How Capital Gains are Taxed, 

[tamtrinh]

Hi Marilyn, 

My case was I kept the car. The proceed was $45,000 ( the amount I got on my check), the price I paid was $28,500. Therefore the capital gain will be $16,500. Is it correct? 

Thank you.  

[MarilynG1]

Yes, that's correct.

Here's more discussion on Lemon Law Settlements. 

[tamtrinh]

Thank you so much.