Received 1099-MISC for Nontaxable Damage Claim Settlement

[JackSpaniel]

Hi,

I filed a claim with the state Department of Transportation for damage to my vehicle due to state's negligence in removing snow and ice from the roadway in winter of 2025.  They honored the claim for the full $700 after I signed the release.  I just received a 1099-MISC for this $700 even though it was purely for body damage to my car based on the repair shop estimate.  My understanding is property damage reimbursement of this kind is non taxable.  When I pop the 1099-MISC into Turbotax of course it treats it as taxable.  What to do?  Thanks in advance!

[ReneV4]

To report your 1099-Misc and also include an offsetting entry due to a property damage claim, do the following:

1. Go to Wages & Income, select Add more income and scroll down to Other Common Income
2. Click the down arrow and select Form 1099-Misc, click Start or Revisit
3. Enter your 1099-Misc exactly as it appears on the original Form 1099, click Continue
4. In the "Describe the reason for this 1099-Misc", write a description in the box (Remember the description for later)
5. Select "None of these apply" on the next screen and click Continue
6. Answer the additional questions and click Continue

When back at the "What you have so far" screen, click Add more income

1. Scroll down, but this time, go to Less Common Income
2. Click the down arrow to the right of Miscellaneous Income, 1099-A, 1099-C and click Add 
3. Scroll down to the bottom and select Start to the right of Other reportable income
4. Click Yes when you reach, Any other taxable income?
5. Click Add and here you will enter the description you wrote above, along with a negative (-700), Continue

The above steps will report the 1099-Misc, as required, but will also reverse the amount, since it was only to cover damages.

[JackSpaniel]

@ReneV4 

Thanks so much, this is extremely helpful! One last question: is it better to do what you suggested here or to ask state Dept of Transportation to send me an amended 1099-MISC showing $0 as opposed to $700 (not sure they will do that).

[Vanessa A]

You may want try to do both.  Even if the DOT will send you another one, it would likely take a while (or not happen at all) and since you would be completing your return showing that this was not taxable income by taking the steps above suggested by Rene, having them correct theirs will just support your claim that it is not taxable.  

Be sure to keep records and receipts for what happened and why it is not taxable income with your tax return in case they would question anything.