FCRA Lawsuit Winnings

[nobodyimportant2425]

Hi there,

I recently won a lawsuit for identity theft. Two parties were found guilty and I was awarded two different sums.

I got a tax form for only one of the winnings and for the full amount (not the amount that I received after lawyer fees)

How do I report these?  I use the paid version of Turbo Tax online

[MonikaK1]

Whether and how much of the amount of a legal settlement is taxable depends on the type of settlement proceeds you received and what they represented. If you received a Form 1099, it should be accounted for on your tax return, as the IRS information return matching program will be looking for it.

Check the terms of the legal settlement. If you received punitive damages, this would be taxable income. 

Property settlements that compensate for a loss in value of your property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement. If the property settlement exceeds your adjusted basis in the property, the excess is income. 

See this help article for instructions for entering a legal settlement in TurboTax. The amount is usually entered as Miscellaneous Income, unless it falls into another category, such as Interest Income or Wages. 

If only part of the settlement is taxable as explained above, enter the entire amount of the 1099 and then make a separate entry of a negative amount and name it "nontaxable portion of settlement".

See IRS Publication 4345 for more information about legal settlements.

Legal fees related to personal issues typically can't be included in your itemized deductions under current law. See this tax tips article for more information.

[nobodyimportant2425]

Thanks Monika,

The damages I received were punitive so they're definitely taxable. So basically for the settlement that came with a tax doc, I'm going to enter the full amount and back out the difference.

For the settlement I didn't get a form from, just enter the amount I won as the taxable income and I should be in good shape.

I would imagine when I review the return at the end, line 8z from Form 1040 Schedule 1 will have sum of both of the settlements?

[DaveF1006]

Yes, when your return is complete, you should either have one sum listed for both settlements or the two may be listed separately in Line 8Z of Schedule 1.