I received 1099-MISC from a builder for construction defect settlement. How do I report this and lower the taxes owed

This money will be used to make repairs and this is my personal home (not a rental).

Most lawsuit/settlement money is taxable income. What you describe is not an exception.  The money is taxable income and is reported as "other income" on line 8z of Schedule 1.  Enter in TurboTax at:

Federal Taxes Tab

 

Wages and income

 

Scroll down to:

 

--less common income

 

---Misc Income, 1099-A, 1099-C..... (Press start)

 

----On the next screen, select Other reportable income

 

You add the money you spend on fixing things to your cost basis, in the home.

 

Thanks!

I was reading this article. Would this work?

 

https://ttlc.intuit.com/community/retirement/discussion/i-received-9000-in-form-1099-from-the-builder-for-construction-defect-settlement-irs-says-it-is-non/00/29293

Q. I was reading this article. Would this work?  (Entering an offsetting negative amount).

A. Yes if you believe the amount is not taxable and have received what amounts to an erroneous 1099-Misc, entering the 1099-Misc and then entering  an equal negative amount is one way to handle it. This method is frequently recommended in this forum).  See update below (choice #3).

 

The article you posted is quite old.  The positive and negative amounts are now entered on line 8z of Schedule 1, rather than line 21 of form 1040. 

 

But that's only HOW you enter it, if it's not taxable  There's still the bigger question: is it taxable or not?  I think it is taxable, but others may disagree. 

 

If you received an erroneous 1099-Misc, you have several choices:

1. Ideally, you get a corrected 1099-misc from the payer
2. Don't report it on your return. Attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. From the  IRS instructions for form 1099-Misc: Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.
3. Report the income as misc line 8z, Schedule 1 income  (enter in TurboTax at the 1099-MISC screen). Then enter a line 8z deduction, for the same amount.  In TurboTax (TT), enter at:
   - Federal Taxes tab
    - Wages & Income
   Scroll down to:
   -Less Common Income
         -Misc Income, 1099-A, 1099-C
          - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front.  Briefly explain at description. Call it something like "erroneous 1099 received"
4. Do nothing and hope you can explain it away when & if the IRS contacts you