1099-MISC for Damages

[avartani2000]

I received a 1099-MISC from our local city, in California, for settlement of damages, ~$850.00, caused to our vehicle due to poor road maintenance and workmanship. Is this considered a taxable income? I have been told that it is not a taxable income; therefore, how do I claim it in Turbo Tax?

[ToddL · Accepted solution]

You will have to report the amount on this 1099-MISC as income, because it's being reported to the IRS. It will appear on your Form 1040 as "Other Income" on Line 21. Then, you will report a corresponding negative amount on line 21 to zero out this income.

To report the income:

• Enter the 1099-Misc in the Other Common Income section (Enter "1099misc" in the Search Box and Select "Jump to 1099misc")
• Indicate that it is a "Reimbursement for Damages", that it does not involve work like your main job, and that it did not involve an intent to make money, and is not a recurring payment (received in the past or expected in the future). 
• The income will be reported on line 21 of your return.

To enter the expense:

• Go to Less Common Income, Miscellaneous Income and Other reportable income (enter "other reportable income" in the Search Box and Select "Jump to other reportable income")
• Continue to the screen "Other Taxable Income". Enter the description as "Cost of Damages" and the amount as a negative number. These are NOT wages.

A corresponding negative amount will be entered, and line 21 will be zero. See the attached screenshot example (different descriptions, but still offsetting).