Lemon law settlement taxable?

Forum|Forum|6 years ago
June 6, 2019
3 replies
0 views

Still a little confused with Lemon law settlement tax. I'm receiving a lemon law settlement of about $27000 where $9,000 is going to the attorney. The value of the vehicle is currently $18,000 (Trade in value) and I Originally paid $43000 1.5 years ago with all taxes and fees. Is that $18000 taxable?

TurboTax Premier Windows

Best answer by PatriciaV

It depends. A lemon law settlement is only taxable for the part that exceeds your loss, which is the amount you paid compared with the fair market value of the 'lemon' at the time you bought it.

Subtract the fair market value from $43,000 and compare the result to the $27,000 you received. If your loss is less than $27,000, then the excess would be taxable. Note that legal fees are not deductible.

PatriciaVAnswer

Employee

It depends. A lemon law settlement is only taxable for the part that exceeds your loss, which is the amount you paid compared with the fair market value of the 'lemon' at the time you bought it.

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

skylinegtr2022Author

Thank you! I don't have to report this on my tax this year since I recently settled. When I file my tax next year, do I subtract the fair market value what the car is worth now or the fair market value when I file tax next year? What happen if I trade-in my car? And the trade-in value is less than selling the car privately. I can't sell the car because the Fair Market Value is a lot less than what I owed on the loan.

jenna6

We just won a lemon law case for our car. We won $83,000, but only walked away with $60,600 and had to return the vehicle. We are trying to figure out if any of that is going to be taxed?

Here is the breakdown: Taking into consideration your total sales price, mileage offset, Mfg Rebate, and incidental damages your actual damages are $27,000.

Accordingly, there are $56,000 in additional damages here ($83,000 - $27,000). As explained, the additional damages have a 40% contingency fee per your retainer agreement. $56,000 x .4 = $22,400.

Therefore you will receive $27,000 + $33,600 ($56,000 - $22,400) = $60,600.

Lawyers will receive $22,400.00 + a motion for our attorney’s fees, costs and expenses.

Thank you!

abauman10

Hello,

I am currently in the same situation you were in. Did you ever receive clarification on what your tax liability was? Were you taxed on the full $56,000 of additional damages or just the take home amount of $33,600? Thank you.

lissnad23

I won the settlement. I bought a Van and I paid 10000 during a year then with the settlement I got back my 10000. so Only one year used the market value was higher. then, I guess this $10000 is not taxable but I got a 1099-misc how using turbotax can I do to don't declare ?

RobertG

A lemon law settlement is only taxable for the part that exceeds your loss, which is the amount you were paid compared with the fair market value of the 'lemon' at the time you bought it.

You need to report the 1099-Misc income to avoid getting correspondence from the IRS.

So you should enter it twice, once as a positive number, and once as a negative number to offset the income.

To report the income in TurboTax, enter 1099-Misc in the search box
Select Jump to 1099-MISC
Enter the information from the 1099-Misc
On the Does one of these uncommon situations apply? page select This was money from a lawsuit settlement
You will then be asked Do either of you have another 1099-MISC? Say no.
To offset this income go to Income and Expenses
Under less common income, select Miscellaneous Income, 1099-A, 1099-C.
Under Miscellaneous Income, 1099-A, 1099-C, select Other reportable income.
You will be asked for a description and amount, enter the lawsuit amount as a negative number to offset the gain.

The income, and the offset to income should appear on Schedule 1 line 9.

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

JoshinSD

Question. I won a lemon law settlement of 30,000. 10,000 went to the attorney for fees and 20,000 went to me. I was able to keep the car. I originally bought the car for 18,000. What do I pay tax on?