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Repayment of a Personal Loan - IRS implications

Coppell, TX |

Over the course of 3 years, I borrowed 36K from a friend. I will be receiving a lawsuit settlement in the amount of 80K within the next day or so (all legal fees deducted), I want to repay my friend the money I borrowed, but I'm not clear on the tax implications or the best way to proceed. Depositing more that 10K in my bank account may trigger some flags.

Attorney Answers 1


  1. Most lawsuit proceeds are taxable, and the payor will likely require you to send them a W-9 so they can 1099 you for the amount of proceeds. The proceeds may go to your lawyer, who is only taxed on their share of the money, just as you're only taxed on your share.

    None of this has anything to do with your debt and your repayment. Your lender should report any interest on this loan as income.

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