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

Itemized deductions

Items, such as interest, state and local income and sales taxes, charitable contributions, and medical deductions, claimed on Schedule A of Form 1040. Itemized deductions are subtracted from adjusted gross income to arrive at taxable income. The amount of itemized deductions is also subject to a reduction when adjusted gross income exceeds certain limits.

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