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  • Writer's pictureJames 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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