Lemon law Cash and keep

[MTLtoSNA]

Hi,

I took a cash and keep settlement and get conflicting responses as to ether it is taxable or not. 
Basically bought a new car, car was constantly in the shop for repairs to the same issue. Was at the dealer for 3 months each time several times. 
Got a lemon lawyer, and got a cash and keep settlement.  Original issue with car is still not fixed, but something I can live with. 
My cash and keep settlement got sent from manufacturer to lemon lawyer who took out 1/3 ad his fee and got sent the remainder. Is this settlement taxable?

[MinhT1]

If the settlement was for loss-in-value of your vehicle and is less than the original value of your vehicle, then the settlement received isn't taxable and isn't reportable.

If the settlement exceeds the original value of your vehicle, the excess is income (capital gain) and has to be reported on Schedule D.

Please read this IRS document for more information.

[MTLtoSNA]

Thank you!

the amount of the settlement is way below the value of the car (like 25% the value of the car). 

i just found out that the lawyer will report to the IRS the gross amount received from the manufacturer and that I received 2/3 with the remains 1/3 going to their firm as a fee. 
Would this change anything and would I have to report any of this like lawyer fees on the taxes?

[KrisD15]

Check with the attorney, if the settlement was in regard to the lemon law, that would be loss of value. 

This means the amount of the award reduces the value of the vehicle. 

If you paid 20,000 and the award was 5,000, your new basis is 15,000. 

If you sell for anything over 15,000 you will need to report a capital gain.

Sell for 15,000 or less and there would be nothing more to report. 

If you receive a tax form reporting the amount of the award, enter that form (usually 1099-MISC)

Next, go to the very last option for income 

"Less Common Income"

"Miscellaneous Income, 1099-A, 1099-C" START

select "Other reportable income" START

Enter "Reduced Basis" as the description and a negative (place a minus sign in from of) the adjusting amount. 

Both the award and the adjustment should be on Schedule 1 line 8z resulting in zero income. 

[MTLtoSNA]

That’s good to know. 
the lawyer said he is not issuing any forms to me at all. The vehicle will not be declared a lemon.