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Got a 1099 for a post-sale settlement related to my home. Does this settlement count as income?

Forum|Forum|5 years ago
January 30, 2021
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We bought our house in 9/2019. In mid-2020, we discovered there were some issues with the roof that had not been properly brought to our attention due to our realtor not giving us the roof inspection document. Ultimately, his brokerage agreed to a settlement with us for half of the cost of our new roof.

I just got a 1099 for this settlement amount. Is this something that I need to count as income, since it actually relates directly to the sale of the house and the settlement related to the non-disclosure of the roof info?

Thanks!

Not A Product Question

Best answer by ColeenD3

Per Publication 4345:

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.

Since you received a Form 1099 reporting the income, you will need to include it and then back it out again. Reference this publication.

To report other income:

Federal Taxes
Wages & Income
I'll choose what I work on
Less Common Income select Start (or Update) for Miscellaneous Income....
Other reportable income and you can enter your own description(s) and amount(s).