Is a California Lemon Law Settlement Taxable?

Is a California Lemon Law Settlement Taxable?

Buying a car can be a daunting experience and even more difficult when you spend your hard-earned money thinking your investment will pay off. Unfortunately, that is not always the case for new car buyers. 

While you might have put down thousands of dollars for your new car and paid monthly statements, you might just find yourself spending money again on repairs, loss of transportation, and other fees associated with a broken-down car. Fortunately, California offers lemon laws to help protect your assets and ensure you can get money back from a defective vehicle.

A lemon law settlement amount will be equal to your car’s value, allowing you to buy a new car or trade yours in for a better model. However, while many people might be happy about the lemon law settlement amount, others wonder — Is money awarded from a lemon law settlement taxable? The short answer is yes, but with some considerations. 

If you are interested in learning more, talk to a lemon law attorney in Los Angeles for valuable advice. You can rest assured you will get a straight answer so you can be prepared when it comes to taxes.

Lemon Law Settlements

To understand whether your lemon law settlement is taxable, it’s important to first understand how lemon law settlements are issued. A lemon law settlement is a financial award given to the consumer after they have won their lemon law case against a manufacturer, such as a car manufacturer or your car dealer. 

The settlement amount is based on the value of your car. If you decide to keep your car, then the money awarded can cover repairs and other fees you may have incurred due to its defects.

Keep in mind, however, that you will not get paid the full amount of what you originally used to purchase the car. For instance, if you spent $50,000 for your car and it has lost value over the years, the amount you receive back from a lemon law settlement will likely be far less than the amount you paid. 

This amount not only depends on the damage and time spent on repairs (due to it being defective) but also due to added mileage, use, and other maintenance issues. However, you will likely get paid more than what the car is currently worth. For instance, if your $50,000 car is now worth $30,000, you might get a settlement of as much as $40,000 to cover other damages.

Dealing With Lemon Settlement Taxes

The money awarded in a lemon law settlement is taxable, but only the amount that exceeds the value of your car now. For instance, if your car was worth $30,000 and you got a settlement of $40,000, then only the extra $10,000 is taxable. In addition, if you paid any lawyer fees during your case, those lawyer fees are not tax deductible, meaning you will still be taxed for the full amount of lawyer fees you paid during your case. 

Maximize Your Lemon Law Settlement With Our Lemon Law Lawyer in Los Angeles

At Kaloustian Law Group, we understand that dealing with taxes can be stressful and overwhelming. Our legal team at Kaloustian Law Group will sit down with you and talk through every step of the process so you know exactly what to expect and can be prepared when it comes time to pay taxes on your lemon law settlement. We are committed to helping you receive the compensation you deserve while also ensuring that all tax laws are abided by. Call us today for a free consultation!