I would appreciate any help with this. We received a check from our builder due to incorrect installations done to our home. There was not lawsuit involved. The builder acknowledge their errors and gave us money. We received a 1099 MISC with Box 3 filled out for the amount of 10000. When I went through the software it greatly reduced my refund by 3000. It appears that we are to pay taxes on this. It technically is not income, as a portion of this will be used to fix the errors. We have not fixed it yet as we are living with it until we have to. Is it true that I have to pay taxes even though it was due to the builder having incorrectly installed items on my house? I have a letter from the builder stating what the check was for. Any help will be appreciated.

yesunless you paid the builder with after tax dollar; $10K that you paid to the builder is part of your income that you need to report on your 1040.so, the amt of refund of $10k needs to be reported on your return as part of your income on 1040




Note: however, when you make a home improvement,not repairs, such as installing central air conditioning, adding a sunroom or replacing the roof, you can't deduct the cost in the year you spend the money. But if you keep track of those expenses, they may help you reduce your taxes in the year you sell your house since these are capital improvements and they increase the value of the home, you can add the cost to the basis in your home. The greater your basis, the less profit you'll receive when you sell your home.
You'll need to keep track of all those home improvement expenses.