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

Involuntary conversion

Forced disposition of property due to condemnation, theft, or casualty. Tax on gain from involuntary conversions may be deferred if replacement property is purchased.

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