Are settlements from lawsuits(civil or otherwise)taxable?


Question:
If you are involved in a lawsuit and the other party decides to settle with you, do you have to pay taxes on that settlement money?

Answers:
If the settlement is for physical injury or illness it is not taxable. If any part of that is earmarked for interest, lost wages or punitive damages, that part is fully taxable as ordinary income.

Also, if a settlement only makes you whole again, such as a suit for damage done to your property by a negligent 3rd party, then it is not taxable to the extent that it repairs the damages or restores your property to it's undamaged condition. Any amount received above that would be fully taxable.
Yes

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