I just received a settlement check for a class action relating to a stock investment I held and sold several years ago.
I'm thinking I should report that amount as a long term capital gain rather than miscellaneous income because it is effectively offsetting some of the long term capital loss I reported for the year in which I sold that stock.
Am I correct?
Jeff
Yes.
Ira Smilovitz
I agree with Ira that is probably accurate. But not necessarily. It depends on what the law suit was about. For example it might have been about returning unearned fees rather than something deal with capital gain.
Have you received (or will you receive) a 1099 describing how they report it? I'd imagine you should, and you need to take a look at that before you can know for sure (though the 1099 may be wrong, too).
If it relates to the stock, it is probably long term capital gain, as you conjecture.
If it relates to the brokerage commission on the stock, the same result holds.
If it relates to brokerage fees, then it is ordinary income if the fees were deducted on your relevant tax returns, which almost certainly did not occur.
And I'm sure there are other possibilities I haven't considered.
-- Arthur Rubin, AFSP, CRTP Brea, CA
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