We recently received stock and stock options instead of cash due to a personal injury lawsuit against a large auto company that filed for bankruptcy. Now the stock is worth more and we want to know if we will we be taxed on the additional value when we sell it?

ANSWER

The BIDaWIZ Team's Answer:

The short answer is that you will not be taxed on the initial receipt of the stock as that is your basis. However, the amount that the stock appreciates from the time you receive it until the time you sell it will be taxable. Generally speaking, claims for wrongful death usually encompass compensatory damages for physical and mental injury, as well as punitive damages for reckless, malicious, or reprehensible conduct. Any amounts determined to be compensatory for the personal physical injuries are excluded from gross income under IRC Section 104(a)(2).