Lemon Law

[jsingh29]

I received a settlement as follows:

Total damages and settlement - $170,197.50 (46,400.80 actual damage + $123,796.70 additional damages)

Recovery for Actual Damage - $46,400.80

Recovery from Additional Damages: $68,088.19 (123,796.70 - 55708.51)

Total to client  - $114,488.99 (46,400.80 + 68,088.19)

Attorney fess - $55,708.51

How much of this is Taxable income and where do I enter it?

[DavidD66]

Can you clarify some things.  What type of claim was this (i.e. what were the damages you incurred)?  What do you mean by "additional damages"?  Were the additional damages "punitive damages"?  

[Opus 17]

Your details aren't really clear.  Let me state some general principles.

• If you are reimbursed for repairs that you previously made, that is not taxable. 
• If they buy back the car, the payment is not taxable up to your original cost (including sales tax), but amounts over your original price are taxable.
• Amounts awarded for other damages, punitive damages, and attorney fees, are taxable.  And unfortunately, you can't deduct the attorney fees as an expense (unless this vehicle is owned by a business, in which case the attorney fees are a business expense).  So you will pay income tax on the attorney fees even though you didn't keep them. 

[jsingh29]

So, I got a car that had some serious defects.

I returned the car and got paid for replacement.

Additional damages was because I didn't have a car for few months. 

[DavidD66]

You will report the taxable amount as Other Income.  To do so in TurboTax Online:

• Go to Income
• Select "Miscellaneous Income, 1099-A, 1099-C".  Depending on which version of TurboTax you are using, you may need to go to "Less Common Income" first
• Scroll to the bottom of the page to Other Reportable Income
• Other taxable income, answer Yes
• Give a brief description of the income (Legal Settlement) and enter the taxable amount.  

If you incurred costs (rental cars, Uber/Lyft rides, etc.) during the period you were without a car, you should deduct those from the taxable amount.