Taxes on a lawsuit settlement...

[TS]

I am suing someone for $200,000 in damages. I presume they are not taxable, as they are genuine damages. They have offered to settle for $100,000.
Will any of that be imputed interest, as the damage was 4 years ago?

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>

[Stuart Bronstein]

TS <*@lippman.info> wrote:

> I am suing someone for $200,000 in damages. I presume they are
> not taxable, as they are genuine damages.

The issue isn't whether or not the damages are genuine. Rather it's
what kind of damages they are. Damages for personal injury are
generally not taxable, though damages for emotional distress (even
if the distress leads to actual physical damages) are taxable.

If you lost money you already paid taxes and are suing to get that
back, a recovery for that would not be taxable. But if you are
suing for lost income of any kind that you have not paid taxes on, a
recovery would be taxab.e

For example.

> They have offered to settle for $100,000. Will any of that be
> imputed interest, as the damage was 4 years ago?

I have never heard of interest being imputed in a situation like
this. Normally you are not entitled to interest on a lawsuit unless
the court or a settlement agreement awards it. Additionally, if you
are receiving less than your actual loss, I doubt it should be a
problem.

Additionally remember that, to the extent your recovery is not
taxed, your attorneys fees are not deductible. To the extnet your
recovery is taxed, your attorneys fees may only be deductible on
your Schedule A - depending on the specific situation.

--
Stu
http://DownToEarthLawyer.com

[remove ps]

TS wrote:

> I am suing someone for $200,000 in damages. I presume they are not
> taxable, as they are genuine damages. They have offered to settle
> for $100,000. Will any of that be imputed interest, as the damage
> was 4 years ago?

If the damages are for reimbursement of damaged property (or services
to repair damaged property) and you did not deduct the damaged property
as a business loss or personal casualty loss, then it is not taxable.
Punitive damages are taxable.

[TS]

On Thursday, May 16, 2013 10:23:18 AM UTC-4, TS wrote:
> I am suing someone for $200,000 in damages. I presume they are not taxable, as they are genuine damages. They have offered to settle for $100,000.
>
> Will any of that be imputed interest, as the damage was 4 years ago?
>
>

It is reimbursement for a loss of after tax money. I am confident the reimbursement is not taxable.

The settlement is written as purely reimbursement; no interest. I am just concerned the IRS will insist that some of it is really interest.
If it went to trial and I won, I would be entitled to interest on the damages. But of course it isn't going to trial.