The Tax Questions Blog

Posts Tagged ‘income’

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Question: Is a legal settlement for an unreturned security deposit taxable?

We sued our landlord last year for retaliatory eviction after we reported him to LA Bldg/Saftey which turned into a nightmare lawsuit in LASC. We then went thru the required mediation process and agree to settle for $3300.00, the amount of sec dep paid on 2002, plus $100.00. We just rec'd a1099 from the landlord with only the $3300 listed as "other income". No one told us to expect this and research so far seems to say it has to "replace" something (i.e. wages) to make it non-taxable. We paid him this money as security when we initially moved in to the property in '02. Lawsuit included "intentional emotional distress" as one of the claims as my husband is a disabled veteran. If anyone has any clues your help is greatly appreciated. Thank you.

Answer: Did the settlement spell out that this was a return of your security deposit plus $100 for emotional distress? If so, only the $100 was taxable. Report it on the "other income" line of the 1040, and attach a statement to your return explaining why you did not claim the remaining amount. If you have a copy of the judgement and it does spell out the settlement, make a copy and attach it to your return.
It seems that your landlord is still jerking you around, because no 1099 was required. I would assume that he is trying to write off the 3300 as a business expense.
You could always call the IRS and ask them to send a letter to your landlord requesting a corrected 1099 (there is such a letter). Jerk him around a bit.
Also, perhaps he never sent the IRS copy to IRS, he only sent a recepient copy to you, just to freak you.

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