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My understanding is that you should only be taxed to the extent that your settlement exceeds the amount of money you spent to fix the problem.
This tax concept is known as the "origin of the claim test", where the money you receive is first seen as a non-taxable return of your principal. Once you're fully paid back, any additional money you receive is taxable.
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Replying to:
I am receiving a class action settlement do to a faulty exterior covering used on my former house. I paid about as much to fix the house as I am receiving from the settlement. I am told the settlement will be taxed. Can I offset the amount received by the money paid to fix the house? The repairs occured 4 years ago. SD MD
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