In the USA if I sue my building contractor for improper construction, and we settle out of court for $50k+lawyer costs/fees. Do I owe taxes on this $50k, or can I use 100% of it to fix the property?
2006-08-13 03:49:03 · 7 answers · asked by nebulasleuth 2 in Business & Finance ➔ Taxes ➔ United States
It sounds like you are getting a refund from the contractor because he did not do the job he contracted to do. In that case, you would not be taxed immediately on the settlement. It would be treated as an adjustment to the basis of the property. If the property is depreciate, this reduced the amount of depreciation you can take. Also, when you sell the property, you would subtract the settlement (excluding the court costs) from the amount you paid for the construction, in determining the gain or loss on the sale.
2006-08-13 19:17:50 · answer #1 · answered by NotEasilyFooled 5 · 0⤊ 0⤋
Yes you owe taxes on this settlement. You will receive a 1099 tax form for this income either you pay upfront or the IRS will tax you at tye end of the year.
2006-08-13 03:55:10 · answer #2 · answered by Jay E 1 · 0⤊ 1⤋
It relies upon upon what the cost is for. commonly, coverage money are for reimbursement for something and consequently are not seen earnings. If the money are to atone on your lost earnings, it somewhat is conceivable that the IRS will evaluate it taxable. If there's a possibility that it somewhat is taxable, you will in all probability decide directly to ascertain with your accountant. edit: Oh, basically reread your question and observed you're in California. California is one in all those states that likes to tax the heck out of human beings. So, odds are in all probability distinctly solid that it somewhat is undertaking to state tax. Welcome to the a million%, your taxes have basically long previous up.
2016-09-29 05:30:12 · answer #3 · answered by ? 4 · 0⤊ 0⤋
Yes you owe tax. But its not a 1099, that form is interest income.
2006-08-13 14:40:02 · answer #4 · answered by linluv2001 2 · 0⤊ 2⤋
it will depend on how the settlement is classified. If it is deemed compensatory (which it most likely would be), then its taxable, even the attorneys fees (which are not deductible). If it is deemed punitive, then it will not be taxable. The builder will want it to be compensatory because it will be deductible to them.
2006-08-14 04:35:41 · answer #5 · answered by extra_37 4 · 1⤊ 1⤋
Based on skimming the IRS document listed below, my answer is: Maybe, Maybe not, Probably both.
2006-08-13 13:57:19 · answer #6 · answered by STEVEN F 7 · 0⤊ 0⤋
not at all as you only received back the money you lost.
2006-08-13 04:49:25 · answer #7 · answered by Anonymous · 0⤊ 0⤋