Submitted By: someone
Answered: March 2, 2020 9:07 pm

I took a stock loss but now have received a recovery through a lawsuit. Do I have to report this?

Because the stock loss produced a tax benefit to you, the recovery is taxable. The question is whether you report the recovery as a capital gain (since you took a capital loss) or as ordinary income. Under the “origin of the claim doctrine,” it appears that the recovery can be treated as capital gain even though the lawsuit recovery isn’t a sale or exchange. But the IRS has not ruled definitively on this exact situation.


Tax Glossary

Tax preference items

Items that may subject a taxpayer to the alternative minimum tax (AMT).

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