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Financial Planning / Tax Strategies
|Subject: Re: Damages||Date: 11/9/2002 10:46 AM|
|Author: pmarti||Number: 62004 of 122921|
I was awarded "damages" when I settled out of court with my insurance company. The suit involved foundation damage to my house. I will realize about $100,000 after the attorney takes his fee. What will by tax requirement be on this money?
Standard tax answer: it depends.
If the damages were compensation for your financial loss, they're not income, but as noted, they reduce your casualty loss. See IRS Publication 525.
If they were punitive damages, they're miscellaneous income to you, and the attorney's fee is a miscellaneous itemized deduction. At least that's the IRS's version. A competing theory is that only the punitive damages net of attorney's fees is income to you. If you're dealing with punitive damages, I recommend a good, agressive CPA.
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