I received 1099Misc lemon law car settlement but how do I enter the original car value to offset the income. Otherwise I have to pay 40% of the settlement as taxes.

A lemon law settlement is only taxable for the part that exceeds your loss, which is the amount you were paid compared with the fair market value of the 'lemon' at the time you bought it. 

 

You need to report the 1099-Misc income to avoid getting correspondence from the IRS.

 

So you should enter it twice, once as a positive number, and once as a negative number to offset the income.

1. To report the income in TurboTax, enter 1099-Misc in the search box
2. Select Jump to 1099-MISC
3. Enter the information from the 1099-Misc
4. On the Does one of these uncommon situations apply? page select This was money from a lawsuit settlement
5. You will then be asked Do either of you have another 1099-MISC? Say no.
6. To offset this income go to Income and Expenses
7. Under less common income, select Miscellaneous Income, 1099-A, 1099-C.
8. Under Miscellaneous Income, 1099-A, 1099-C, select Other reportable income.
9. You will be asked for a description and amount, enter the lawsuit amount as a negative number to offset the gain.

The income, and the offset to income should appear on Schedule 1 line 9.

Income and expenses? don't see that exact category ........under miscellaneous income 1099-a, 1099c??? which do you select ?? not clear in explanation...it this the same process for 2021 year turbo tax?

@ekotop522 , from the instructions mentioned above, instead of income and expenses, please look for Wages & Income.

Please follow the steps below:

1. Click on Tax Home from the Left Side Menu.
2. There will be an option for Wages & Income on the main screen.
3. Then scroll down till you see the section titled "Less Common Income". Within this section, there will be an option for Miscellaneous Income, 1099-A, 1099-C. Click on Start next to it.
4. Then there will be an option for Other Reportable Income. Click on Start next to it.
5. You will be asked for a description and amount, enter the lawsuit amount as a negative number to offset the gain. ( Enter the negative amount and all these steps, once you have completed the Form 1099-MISC as mentioned in the steps earlier).

 

Thank you !!! I was able to locate and follow steps !!!! Cheers !!

Im in the same boat. Im getting a lemon settlement and had a few questions. First off how do you determine the FMV of your car at the time of purchase?

 

Also when entering the negative amount in "Other Reportable Income", what should we put in the description?

 

Thanks