Class action settlement for damages taxable?

Forum|Forum|1 year ago
February 10, 2025
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I received a Class action settlement for damages by a plumbing manufacturing company that had defective lines that would suddenly fail and flood the house. Huge lawsuit over 5 years and we were awarded damages to have to replumb our whole home (3340 sq feet 4 bathrooms and kitchen) I was told that damages aren’t taxable, is that true? Taxes would take a huge chunk away from us being able to re-install the plumbing. If so,what is the IRS code?

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Best answer by Vanessa A

No, If the settlement received was for property damages and made you whole but did not cause you to have a gain or come out better than you started, then this would not be taxable income.

This would be treated similar to getting money from the insurance company that paid to replace the damage. It is only taxable when it puts you in a better position than you started.

KrisD15

To clarify, what form did you receive reporting the settlement.

Will the settlement be more that the cost of repairs?

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BF85Author

No form was with it, I haven’t filed. No it is not more than it will cost to repair it

Vanessa AAnswer

No, If the settlement received was for property damages and made you whole but did not cause you to have a gain or come out better than you started, then this would not be taxable income.

This would be treated similar to getting money from the insurance company that paid to replace the damage. It is only taxable when it puts you in a better position than you started.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"