Do I have to pay taxes on a lemon law settlement in California? 1 Answers as of January 03, 2011

I received a settlement check for $4,000 in a "lemon law case" regarding my car earlier this year. It wasn't enough to replace the car (the car was a newer model, 2009 and I was upside down). Since then the car has been totalled and I no longer have it. I am wondering if this is taxable income that should be included on my tax return for the year? And if so, if I should contact my attorney who issued the check for documentation. What kind of documentation would be acceptable to have the taxes filed?

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Givner & Kaye
Givner & Kaye | Bruce Givner
Without doing research, I am uncertain. It sounds to me like it is the replacement of a personal asset, so that it would not be taxable income. (Contrast: if you received a settlement from your employer for lost income, it would clearly be taxable income to you.) However, you should check with the CPA who prepares your income tax return and let that professional do the research.
Answer Applies to: California
Replied: 1/3/2011
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