My builder is offering me a settlement in lieu of fixing things they have damaged inside my home. The settlement agreement clearly states the amount is for repairs and living expenses while displaced out of our home. They want to send me a 1099 with this as miscellaneous income in Box 3. Is this appropriate? How do I file this as untaxable?

A settlement that reimburses you for expenses and repairs is NOT taxable. Do not allow him to issue you a Form 1099, because, once issued, it is REAL hard to dispute.

Thanks, I called the IRS, and an agent who focuses on settlements told me that I can exclude the amount and write a letter referencing her agent number and this conversation with an explanation of what the amount was for. Thinking that sounded too easy, I still argued with the builder and essentially got them to give me another $500 for my trouble, but I made them put in writing that the settlement is strictly for repairs and reimbursements of living expenses, and that I am not a contractor or agent of the builder. I also agreed to provide them receipts or cancelled checks by the end of the calendar year for ANY repair or improvement to my home, and if in writing they agreed to not question the expenses, not force me to provide details of the contractors used, and if the amount of the expenses meets or exceeds the amount of the settlement, they would issue no 1099, if it doesn't meet or exceed, they'd issue for the difference.

So now, if I want to go out and buy a pool, I can. If I want to pay John Doe $5000 for work he did to my house, I can write a check and send a copy of the cancelled check to the builder, and the builder has contractually agreed to not question it or to force me to give them tax details for John Doe.