Are asbestos settlements taxable? Got one from my landlord and confused about taxes

Thanks for the reply! The settlement agreement is pretty vague honestly. It mentions "compensation for potential exposure and related inconveniences" but doesn't break down specific amounts for different things. There's also a section about "release of all claims related to the asbestos incident including but not limited to health concerns, relocation expenses, and personal property." Would I need to somehow figure out how much was for the potential health impact versus the other stuff? Or does the fact that it bundles everything together make the whole thing taxable?

When the settlement doesn't clearly allocate amounts, it makes the tax situation more complicated. If health concerns were a primary part of the claim, you could take the position that at least a portion was for potential physical injury and therefore non-taxable. Since your agreement specifically mentions relocation expenses and personal property, those portions would typically be taxable. Without a clear breakdown, you might need to make a reasonable allocation yourself. I'd recommend consulting with a tax professional who has experience with settlements. They could help you determine a defensible position and proper documentation in case of an audit. If the amount is significant enough, the peace of mind might be worth the cost of professional advice.

Did it give you actual advice about what numbers to put where on your tax forms? I'm dealing with a settlement too (slip and fall) and my tax guy is charging me an arm and a leg for what seems like pretty basic advice.

How does this work with the documentation though? My settlement had a confidentiality clause. Can I still upload those documents to a website? Also, does it actually tell you how to fill out the specific lines on your tax forms?

It definitely shows you where to report different types of settlement income on your tax forms. For my lead exposure settlement, it flagged which parts needed to go on Schedule 1 as "Other Income" and which parts could be excluded completely. It even generated sample text for the description line. Regarding confidentiality concerns, they have pretty strong privacy protections in place. Your documents are encrypted and only used for the analysis. But that's a good point about settlement confidentiality clauses - mine didn't restrict tax preparation uses, but you might want to check yours specifically. In my experience, confidentiality clauses are mainly concerned with public disclosure, not private tax preparation.

Does this actually work? I've literally spent HOURS trying to get through to the IRS about a tax notice. Like, I'm talking 3+ hours on hold only to get disconnected. I'm skeptical anything could get me through faster.

This honestly sounds like a scam. Why would I pay a service to call a government agency? And how exactly does it "hold your place in line" better than I could just waiting on hold myself? Plus, are we sure it's safe to use third-party services to contact the IRS?

It absolutely works! The system basically navigates all the IRS menu options for you and uses their technology to stay connected to the hold line. When an agent finally answers, their system calls your phone and connects you directly to the agent. You're not on hold at all until an actual person is ready. As for safety concerns, you're not sharing any personal tax information with the service itself. They're just connecting the call. When you speak to the IRS agent, it's a direct connection just like if you had called yourself. I was skeptical too, but after wasting an entire afternoon trying to get through myself, it was totally worth it.

No, I haven't received any 1099 forms for the settlement, which made me even more confused about how to handle it. I'll definitely check out that publication! Do you remember if your settlement involved any compensation for things besides the potential health stuff? Like did you also get money for having to relocate or for any damaged property? I'm wondering if I need to somehow split up my settlement amount.

I did get money for both health concerns and for relocation expenses. My settlement agreement actually broke it down - about 75% was designated as compensation for "exposure to harmful substances and potential bodily harm" and 25% was explicitly for "temporary housing and related expenses." I only paid taxes on that 25% portion. Since you haven't received a 1099, that's actually good news - it suggests the payer doesn't consider it taxable income. But yeah, if your agreement lumps everything together, you might need to make a reasonable allocation yourself. The publication I mentioned should help, but I think the correct number is actually Publication 525 (in the section about settlements).

You generally report settlement money in the year you receive it, not when the settlement was reached. If your settlement is being paid out over multiple years, you'll report each payment in the tax year you receive it. Just make sure you're consistent about how you're characterizing the income (taxable vs. non-taxable) across all years.