• James D. Lynch

Are damages taxable? It depends on the type of award.

● Recovery for lost wages or lost profits are taxable (because they are replacing taxable income).

● Breach of contract awards are taxable (because it's generally a loss of income)

● Personal injury awards are NOT taxable.

● Emotional distress awards are taxable (unless they arise from personal injuries).

● Medical expense awards are NOT taxable (as long as you did not take an itemized deduction for medical expenses related to the injury or sickness in a prior year)

● A payment for damaged or destroyed property is taxed as a capital gain if the money received exceeds the property’s cost (or "basis").

● The recovery of an expense is NOT income (unless the expense was deducted in a prior year, this is known as the "tax benefit rule").

● Punitive damages are taxable.

● Pre-judgment interest and post-judgment interest are taxable.

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Law Office of James D. Lynch, PLLC

3000 Joe Dimaggio Blvd #90, Round Rock, TX 78665


(512) 745-6347

(714) 745-3875

©2020 by Law Office of James D. Lynch, PLLC. The information contained in this website is for informational purposes and is not to be considered legal advice.  Any correspondence between you and the Law Office of James D. Lynch is not intended to create an attorney-client relationship.  Please do not send confidential information to us until after an attorney-client relationship has been established by an engagement letter signed by the proposed client and our attorney.