From Opus 17:
Generally
speaking, payments for personal injury or property damage are not taxable, but
recoveries for punitive damages or lost wages/income are taxable.
There
are a number of variations (like, if you deducted medical expenses in a prior
year that are now paid off by the settlement, you have a report a reimbursement
of a deduction, and that is taxable. Or, if you received money for your
damaged car and the money is more than the car was worth, the excess is
taxable). This link provided gives more examples. http://www.irs.gov/pub/irs-pdf/p4345.pdf
Your
attorney costs are deductible, but only as far as the damages are taxable (if
50% of your damages are taxable, then 50% of your fees are deductible).
And they are a miscellaneous deduction subject to the 2% rule, so you may
or may not actually benefit from claiming the deduction.
In
a perfect world, you would receive a 1099-Misc from the payer that only lists
the taxable part (wages and such).
https://ttlc.intuit.com/questions/1901380-entering-an-award-from-a-legal-settlement-in-turbotax
