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.

Source: https://taxprof.typepad.com/taxprof_blog/files/2005-16770-1.pdf