Wrongful Foreclsore - Lender ordered to reimburse my legal fees and costs

[tcbee3]

I've been searching the TurboTax community posts for hours, but have not found an answer.

My lender initiated a foreclosure resulting from mistakes made by the servicer.  Eventually, they realized they were not going to be successful and dismissed the lawsuit.  The lender agreed to pay my attorney fees and costs for forensic accounting, etc.  This is a reimbursement for money I already paid taxes on.  The lender sent a 1099-MISC with Box 3 showing $61K.  This is not income but more of a refund for costs I otherwise would not have incurred if they had not erroneously initiated the lawsuit. How do I fix this in TurboTax Deluxe?

[LindaS5247]

Because this reimbursement was reported on Form 1099-MISC, the IRS will expect to see it as income on your tax return.  So you should enter it in TurboTax (unless the issuer will issue you a corrected 1099-MISC to show no income). You will then make an adjustment in TurboTax to offset the amount of income. 

To do this, you can: 

1. Open TurboTax 
2. Select  Tax Home in the left pane if you are using TurboTax Online or select your Wage & Income tab in TurboTax Desktop
3. Select the dropdown to the right of Wages & Income in TurboTax Online, in TurboTax Desktop choose "I'll choose what I work on"
4. In TurboTax Online on the screen "Great! We've got your income info" select the dropdown to the right of "Other Common Income" -- Tax refunds, 1099-G, 1099-NEC, 1099-MISC, 1099-K. In TurboTax Desktop, scroll down to "Income form 1099-MISC"
5. Select "Start" to the right of Form 1099-MISC under "1099-MISC and Other Common Income"
6. Select "Yes" on the "Did you get a 1099-MISC?" screen
7. Enter the information from your 1099-MISC on the "Let's enter the income from your 1099-MISC" screen, then select "Continue"
8. On the screen "Describe the reason for this 1099-MISC", enter "Reimbursement for income already taxed" or something like that, then select "Continue"
9. On the screen "Do one of these uncommon situations apply? , select the bullet next to "None of these apply", then select "Continue"
10. On the screen "Did the Reimbursement XXX involve work that's like [your] main job?" page, select "No it didn't involve work like [your] main job", then select "Continue"
11. On the screen "How often did [you] get income for Reimbursement for XXX?", Answer appropriately, then select "Continue"
12. On the screen "Did the Capital Credit Refund involve an intent to earn money?", select  "No, it didn't involve an intent to earn money".  This indicates to the program that this wasn't self-employment income, so self-employment tax won't be triggered.  Select "Continue"
13. On the screen "Your 1099-MISC summary page", select "Done".

NEXT:

To enter the adjustment in TurboTax

1. After the above actions, you should be on the screen "Let's get the details on what you told us earlier…"
2. Scroll down and select the dropdown to the right of "Less Common Income"
3. Select  Start or Revisit to the right of "Miscellaneous Income, 1099-A, 1099-C"
4. On the screen "Let's Work on Any Miscellaneous Income" select "Start" to the right of "Other reportable income"
5. On the  screen "Any Other Taxable Income?" , select "Yes"
6. On the screen "Other Taxable Income" enter the description "Reimbursement for income already taxed" and then the amount, as a negative (i.e., -1,000).  and select "Continue"
7. On the screen "Other Miscellaneous Income Summary" you should see the transaction.  
8. Select "Done"

If your TurboTax navigation described above doesn't look like what you're experiencing, see the TurboTax Help article Why does the TurboTax navigation menu look different for me?.