Submitted By: Jack
Answered: May 13, 2014 8:30 am

I received a legal settlement from an insurance company as a result of my sister’s death in a car accident (I’m her next of kin). Is this taxable to me?

Sorry about your personal loss. The settlement is tax free to you because it is compensation for personal physical injury. However, if any part of the settlement is for punitive damages, those are taxable.

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Tax Glossary

Adjusted basis

A statutory term describing the cost used to determine your profit or loss from a sale or exchange of property. It is generally your original cost, increased by capital improvements, and decreased by depreciation, depletion, and other capital write-offs.

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