1099-MISC Lawsuit - partially taxable

[dmech]

Hello,

I received a very large settlement for property repairs in 2021 (building defects from builder that need correcting).  My settlement statement itemizes the award - property repair, content replacement, lawyer fees, interest, third party expert reimbursements, etc.

From what I can gather from IRS publications, the property repair and content replacement portions are non-taxable and would be handled via a reduction in the basis of my property, but the lawyer fees, third party fees, and interest ARE taxable.  The 1093-MISC just lists a single line item in box-3 containing the entire amount.

I pulled up my 2020 TurboTax CD to check the functionality and the ability to input my 1099-MISC data is very clear.  What I cannot find is a way to report the deductions for the non-taxable portions of the award.  Is Turbo Tax able to handle this scenario or do I need to get a CPA to do my 2021 taxes?

[ThomasM125 · Accepted solution]

TurboTax can handle this scenario. You report the form 1099-MISC in the Wages and Income section of TurboTax, then Other Common Income, then Income from form 1099-MISC. Then, go to the Less Common Income section and choose Miscellaneous Income, 1099-A, 1099-C and choose the Other reportable income option. In that section, enter your non-taxable proceeds as a negative number and enter a description. This amount will be subtracted from your proceeds, leaving the taxable balance as such on your tax return.

[dmech]

Thank you so much for this @ThomasM125 . 

Will I have to provide that settlement statement as part of my filing, or just if i get audited?  Not sure if Turbo Tax has functionality to attach pdf files like that to the return.

[ThomasM125]

No, you don't have to include it, just keep in your files.