Vehicle Class Action Lawsuit - Exempt Under Property Loss

[Jethro1984]

I received an $800.00 settlement from a Class Action Lawsuit against FCA (FIAT Chrysler) for transmission problems with a vehicle I own.  To be clear, the vehicle was purchased with after-tax money, is a personally owned vehicle, and not used for business.  In reviewing Publication 4345, which deals with settlements, I am led to believe that this settlement is non-taxable on the basis of the fact that it was essentially to compensate for a loss of value of the vehicle (the property-loss exemption).  The vehicle was originally about $40,000 and this settlement is $800.00 which obviously does not represent an income on my part.  Am I accurate in my assessment that it is non-taxable?  I did receive a 1099-MISC and entering it seems to have Turbo Tax try to list it as taxable income because the various exceptions are not present.  I want to see what others think because this is obviously a confusing situation.  In a certain sense, you might call this a "rebate" on what I originally paid with after-tax money and therefore would almost about to double-taxing the money.

Please forgive me if this question is redundant, I asked it on the Turbo Tax Community but can't find it so I am not sure it posted.

[JamesG1]

For well-know and/or well-publicized class action lawsuits, you may be able to find the actual judicial decree on the internet.  In the past, have seen where some of these decrees specify what is taxable income and what is not.

The 1099-Misc does indicate taxable income.

Follow these steps to report the taxable income.

• Click on Federal.
• Click on Wages & Income.
• Under Your Income, click Edit/Add to the right Other Common Income.
• Under Form 1099-Misc, click Yes.
• Let’s get the info from your 1099-Misc, box 3 Other Income, click Continue.
• Describe the reason for this 1099-Misc, click Continue.
• Select This was money from a lawsuit settlement.
• Under Was any part of the lawsuit settlement for back wages?, select No.

This may also be helpful.

[Jethro1984]

Thank you for the reply, James.  However, if this particular settlement is taxable, then to what would this particular section of Pub 4345 apply?

Loss-in-value of property

-Property settlements for loss in value of property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement.

- If the property settlement exceeds your adjusted basis in the property, the excess is income. For more information, see the Instructions for Schedule D, (Form 1040) Capital Gains and Losses and the Instructions for Form 4797, Sales of Business Property.

[KrisD15]

You can enter the 1099-MISC for the income and then a negative entry for the loss of value. 

Be sure to then adjust your basis when you sell or  dispose of the asset.

Sign into your account and return. Click the “Pick up where I left off” bar

Click on Federal on the left side-bar, then Wages & Income along the top.

When you get to the Income section, (you may need to click "Show All Income" first) Scroll down to Other Common Income and Click Show more

Click Start or Revisit for Form 1099-MISC PAST SELF-EMPLOYMENT

Enter a description for the non-work income, such as “Settlement Payment” for the reason and Continue

Click “None of these apply.” at the bottom of the list for “Does one of these uncommon situations apply? And Continue

Answer “No, it didn’t involve work like my main job.” on the next screen and Continue.

Click the year you got the reward and Continue 

Answer “No, it didn’t involve an intent to earn money.” on the next screen and continue.

Do you have another 1099-MISC? Click No and Continue

Click Done.

The income will show as a line item on line 7a of your 1040 and not as Self-employment. 

Next, make the adjustment for the reduction in value (basis) 

Click on Federal,,,Wages & Income,,,,scroll down to the last section "Less Common Income"

Scroll down to the last choice "Miscellaneous Income, 1099-A 1099-C" and Start

Scroll down to the last choice "Other reportable income" and Start

For the Description enter "Loss in value"

Enter the amount AS A NEGATIVE NUMBER

(remember that you are also reducing the basis in your property by this amount.)

Click Continue and Done

The 1099-MISC and your adjustment will show on line 7a the 1040.