In 2016, filed claim for Property Damage against CA. In 2017, CA paid the claim. Yesterday I received a 1099-MISC for the settlement. How is a Damage Settlement Income?

[Carl]

How you report this depends on what box of the 1099-MISC the income is reported in. Also, why you received that money could affect the reporting requirement also. What box is the payment in? So why did CA pay you for property damage? What property of yours was damaged? Personal property? Real estate property? (if the latter, rental property? business property? Personal residence? 2nd home?)

[stacy2]

It is reported as non-employee compensation.
A tree in a State Park fell on our RV and damaged it.
The cost of the damage repair equaled the settlement.

[IreneS]

In general income from a property damage claim is not taxable.  According to IRS Pub. 525 - Taxable and Nontaxable Income: 

Property damage. Payments you received for property damage aren't taxable if the payments aren't more than your adjusted basis in the property. If the payments are more than your adjusted basis, you will realize a gain. If the damage was due to an involuntary conversion, you may defer the tax on the gain if you purchase qualified replacement property. See Pub. 544. If the payments (including insurance proceeds) you received, or expect to receive, are less than your adjusted basis, you may be able to claim a casualty deduction. See Pub. 547

[Carl]

Here's how you will enter that 1099-MISC in TurboTax so it's not treated as self-employment income by the program. Then you will negate it's taxability by claiming your loss in the Casualty & Thefts section of the program under Deductions and Credits.

Reporting 1099-MISC (box 3 or box 7) that is not self-employment income

Under the Wages & Income tab (or Personal Income tab) scroll down to Other Common Income and elect to start/update Income from form 1099-MISC. Then click YES to indicate you have a 1099-MISC.

Enter the 1099-MISC exactly as printed, and then Continue.

Enter the reason you got this money – be it scholarship, bonus, whatever. Then continue.

Select None of these apply, then Continue.

Select No, it didn’t involve work….. and Continue.

Select ONLY the tax year for which this specific 1099-MISC was issued. Do not select the year that you received the 1099. Select the year for which the 1099-MISC was issued. Select no other year. Then Continue.

Select No, it didn’t involve an intent to earn money, then Continue.

Select NO, then Continue.

Click the DONE button, and that does it.

[stacy2]

Nope. Increased Fed Tax by $2800. 1099-MISC was for $8714.

[Carl]

On the federal side, until your itemized deductions exceed your standard deduction, those itemized deductions make no difference. The rules are a bit more stringent for casualty losses though.
You can only deduct losses not reimbursed or reimbursable by insurance or other means. You'll need to subtract $100 from each casualty loss of personal property. The total of your casualty and theft losses on personal property must be more than 10% of your adjusted gross income (AGI).
So from what I see the payment is taxable income. If you're in CA, then I'm fairly certain your loss does not exceed 10% of your AGI after subtracting $100 from it.