by John Darer CLU ChFC MSSC CeFT RSP CLTC
How Are Ohio Personal Injury Settlements Taxed?
Someone using the Bing Search engine has a question concerning the taxation of personal injury settlements "I'm getting a settlement for a car accident what would the Capital Gains Tax in Ohio be?"
- The amounts you receive as compensation for damages related to a personal physical injury (such as what one might sustain in a car accident) are generally income tax free. There is a specific exclusion for such damages at Internal Revenue Code Section 104(a)(2).
- You will not be able to exclude the part of your recovery for past medical expenses, that you have already taken a tax deduction for.
- Capital gains are the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property.
- A capital gains tax is a levy on capital gains. A personal injury lawsuit settlement is not a capital gain.
- You may be able to deduct a capital loss to the extent that it exceeds $100 (new for 2010) with a limit of 10% of your Adjusted Gross Income (AGI)
Casualty loss proof. According to the IRS, for a casualty loss, your records should show all the following
- The type of casualty (car accident, fire, storm, etc.) and when it occurred.
- That the loss was a direct result of the casualty.
- That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage.
- Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery.
Payments from a structured settlement that is established in your Ohio personal injury case as damages for physical injury, physical sickness, wrongful death or workers compensation are excluded from gross income per IRC Sections 104(a)(2) and 130. Constructive or actual receipt of funds used to establish the structure, must not have occurred.