Lemon Law Settlement

Forum|Forum|5 years ago
May 7, 2020
1 reply
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Looking for clarification on Lemon Law Settlements and what amount is taxed. Overall settlement amount is $40,000 in which $22,000 is my loss and $18,000 is under additional damages. Of the $18,000 my lawyer gets $8,100 (45%) and I receive $9,900 (55%). Will I be taxed on the full $18,000 or just the $9,900? If taxed on the full $18,000, is the $8,100 that my lawyer takes deductible?

Not A Product Question

macuser_22

Reimbursement of your cost is not taxable since you are only getting the money back that you paid for the vehicle. Any punitive damages is taxable income.

If this was a personal vehicle then after 2017 attorneys fees are no longer deductible. Business use vehicles might be deductible.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

abauman10Author

Thank you for responding. Would you be able to clarify if I am taxed on the entire punitive amount ($18,000) or just my actual take home ($9,900) which is after my lawyer collects their percentage?

macuser_22

The entire amount. The fact that you used the funds to pay an attorney does not change the tax.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**