Terry53029
Level 14
Level 14

I think the settlement needs to be reported on 8949. This would be a return of her investment (look up Origin of claim doctrine) You will need to know her basis, and if it was higher than the $35000 she received, then it would not be taxable. I would put the amount as other income with a corresponding negative entry with an explanation that you are reporting it on 8949. I would not wait to see if she receives more in a later year, but would report it each year she receives a settlement. Just my opinion, and the way I would do it.