I received payment for a lawsuit against my bank for bad collection practices. They credited my account a refund of a loan I paid off. Do I report this as a 1099-misc

[Phillip1 · Accepted solution]

Most likely no.

Loan proceeds are not taxable income and the payment of a loan is not a deductible expense. Therefore a refund of a loan you be considered a return of capital.

However, if the loan was used to buy a business asset or if it was used for business expenses that you deducted, you would need to claim the refund as income to the extent that you had deducted the money as tax expenses. Further, if this was a refund on a home mortgage that refunded deducted mortgage interest, you would also need to claim the refunded interest as income.