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My financial advisor mis guided me about a 1031 exchange and…

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My financial advisor mis...

My financial advisor mis guided me about a 1031 exchange and I had to pay $70,000 in gains tax I sued and got settlement for $70000 is it taxable?

Accountant's Assistant: Have you talked to a MI lawyer about this?

I sued and got settlement for $70,000 is it taxable?

Accountant's Assistant: What steps have you taken so far?

It's a tax question your not reading the question

Submitted: 1 month ago.Category: Tax
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3/26/2018
Tax Professional: Gerald, Esq, Attorney replied 1 month ago
Gerald, Esq
Gerald, Esq, Attorney
Category: Tax
Satisfied Customers: 5,115
Experience: Over 30 years of experience.
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Hello,
Thank you for using Just Answer. Please bear with me while I review your question. I will respond fully shortly. Thank you for your patience.

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Tax Professional: Gerald, Esq, Attorney replied 1 month ago

I am working on your answer now. I am sorry for the delay. It takes some time to prepare a complete answer. Please note the phone call requests are generated automatically from the system. I do not control them.

Thank you for your patience and understanding.

Kind regards,

Gerald

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Tax Professional: Gerald, Esq, Attorney replied 1 month ago

Hello,

Thank you for your patience and thank you for using Just Answer. I want to provide you the best service I can. Please feel free to ask any follow-up questions you have.

I am an attorney with 30 years of experience; I hope to provide you information that will help you in resolving your question.

Yes. I am afraid that the money that you receive in a law suit settlement is taxable except for certain types of damages. The damages that are not taxable relate to recovery for personal injuries.

But the recovery for other losses are in fact taxable.

See this article for more information:

https://www.irs.gov/pub/irs-pdf/p4345.pdf

I hope the information I provide is useful to you. I want you to be comfortable and satisfied with my attempt to assist you. Please, if you have ANY follow-up questions, feel free to ask.

If you ask a follow-up question and I do not respond immediately, it is because I am temporarily unavailable. I promise to respond as soon as I return. Please note that I am often unavailable Friday evening through Sunday.

Please do not forget to give me a positive rating. It adds nothing to your costs but helps me greatly. Thank you.

If you are dissatisfied with my response, PLEASE let me know before giving me a negative review so that I may try to be of better assistance. Or, if you prefer, let me know and I can “Opt Out” and your question can be re-posted without additional cost to you. I will be fair to you, and only ask the same from you.

Good luck.

Please note: Information is educational and not given as legal advice. Only your local attorney can give legal advice. I can't establish or accept an attorney-client relationship with you. All posts are available for public viewing.

Kind regards,

Gerald

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Tax Professional: Gerald, Esq, Attorney replied 1 month ago

Also see this article for a more detailed discussion of the tax treatment - including the deduction available for the attorney's fees:

https://pocketsense.com/tax-percentage-lawsuit-money-6867.html

Kind regards,

Gerald

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Customer reply replied 1 month ago
I thought that how it is taxed depends on the "origin of the claim"?
Tax Professional: Gerald, Esq, Attorney replied 1 month ago

Yes. That is correct. If the claim was for personal injury or wrongful death then the settlement is tax exempt.

You settlement - as you describe it - was professional negligence in relation to a real estate transaction. So there is no exemption.

I am sorry - I wish the answer was different, but I would not want to mislead you into more tax problems.

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Tax Professional: Gerald, Esq, Attorney replied 1 month ago

*your settlement...

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Customer reply replied 1 month ago
I understand that but can be taxed as gains, wages ordinary income, basis recovery how it is taxed depends on origin of the claim do you get my drift?
Tax Professional: Gerald, Esq, Attorney replied 1 month ago

I see. Thank you for claryfing your question.

You may be able to claim the settlement is a long term capital gain if it relates to the sale of a capital asset. You have to prove it is related to the capital transaction.

See this article for a very indepth discussion:

http://taxprof.typepad.com/taxprof_blog/files/2005-16770-1.pdf

Kind regards,

Gerald

(Please do not forget to rate me – click the five stars. It adds nothing additional to your costs, but it helps me greatly. Plus it is good Karma for you. Thank you.)

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