topic Lemon Law Settlement in Other financial discussions

Lemon Law Settlement

abauman10 — Thu, 07 May 2020 21:32:29 GMT

Looking for clarification on Lemon Law Settlements and what amount is taxed. Overall settlement amount is $40,000 in which $22,000 is my loss and $18,000 is under additional damages. Of the $18,000 my lawyer gets $8,100 (45%) and I receive $9,900 (55%). Will I be taxed on the full $18,000 or just the $9,900? If taxed on the full $18,000, is the $8,100 that my lawyer takes deductible?

Re: Lemon Law Settlement

macuser_22 — Thu, 07 May 2020 22:28:09 GMT

Reimbursement of your cost is not taxable since you are only getting the money back that you paid for the vehicle. Any punitive damages is taxable income.

If this was a personal vehicle then after 2017 attorneys fees are no longer deductible. Business use vehicles might be deductible.

Re: Lemon Law Settlement

abauman10 — Thu, 07 May 2020 22:46:05 GMT

Thank you for responding. Would you be able to clarify if I am taxed on the entire punitive amount ($18,000) or just my actual take home ($9,900) which is after my lawyer collects their percentage?

Re: Lemon Law Settlement

macuser_22 — Thu, 07 May 2020 23:48:55 GMT

The entire amount. The fact that you used the funds to pay an attorney does not change the tax.