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
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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.
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.