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The MDTAXES Network is an affiliation of CPAs that specialize in the tax planning and preparation for young health care professionals. Please leave your questions or comments for our CPAs, who visit the message board regularly, or review the answers, suggestions and ideas posted in response to your colleagues' questions.
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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
Zip Code: Diberts@msn.com
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
Zip Code: cpa@mdtaxes.com