Income from a lawsuit or settlement can be excluded from income if it’s paid due to personal injury or sickness. In one case, the U.S. Tax Court ruled that a taxpayer wasn’t entitled to exclude from income the amount her homeowner’s association had paid to settle a lawsuit she’d filed. She’d alleged nuisance, and breach of covenants and fiduciary duties because the association had ignored her complaints of barking dogs, noise due to improper construction and mold issues. The settlement’s terms didn’t show the payment was to compensate her for injury or sickness. Rather, it appeared to be in exchange for agreeing to dismiss her claims and take down a website she’d set up. (TC Memo 2019-108)