Are Settlements due to Loss-in-value of property
Property settlements for loss in value of property that are less than the adjusted basis of your property are
not taxable and generally do not need to be reported on your tax return. However, you must reduce your
basis in the property by the amount of the settlement.
If the property settlement exceeds your adjusted basis in the property, the excess is income.
Interest on any settlement is generally taxable as “Interest Income” and should be reported.
Punitive damages are taxable and should be reported as “Other Income”, even if the punitive damages were received in a settlement for personal physical injuries or
Some settlement recipients may need to make estimated tax payments if they expect their tax to be $1,000 or
more after subtracting credits & withholding. Information on estimated taxes
Important Note about Health Insurance Coverage. If you, your spouse, or your dependent enrolled
in health insurance coverage through the Health Insurance Marketplace and advance payments of
the premium tax credit were made to the insurance company, let the Marketplace know if you have
a change in circumstances such as a taxable settlement resulting in an increase in your income.
Reporting changes allows the Marketplace to adjust the amount of your advance credit payments,
which helps prevent large differences between your advance credit payments and the premium tax
credit you are allowed and, potentially, an increase in your tax liability.