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Is a legal judgment that I won subject to federal tax, even if the amount I was paid was offset by damages I sustained?

Little Falls, NJ |

I have a taxation question regarding tax to e paid on a legal judgment. I won a $2,000 legal judgment in 2013 and the Plaintiff required me to send a W-9 before paying me. The $2,000 ended up reported to the IRS and it now appears that I have to pay taxes on it. However, the $2,000 was offset by property damage that the Plaintiff caused me. In reality, I did not gain anything because the damage I sustained equals the amount the Plaintiff paid me. Is there a way to avoid paying taxes on this amount? Is there a way to deduct the $2,000 of damages I sustained from my gross income such that the $2,000 payment passes to me tax-free?

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Filed under: Tax return Tax law
Attorney answers 2

Best Answer
Posted

A settlement of judgment in a suit for personal (physical) injury is excluded from income. This was not a personal injury suit. I would consult with a tax lawyer (you will need to provide more details about the cause of the damage, what was damaged, time of the damage and time of the recovery) to get a reliable answer to your question.

Posted

If you received it for property damages it is probably taxable, probably as capital gains. Discuss it with a CPA. The CPA will have to see the complaint and the judgment.