Before we answer the question of “is a non-recourse loan taxable?” it will be helpful to go over quickly what a non-recourse loan is.
A non-recourse loan is a type of loan where you put up collateral to get a loan, and if you default on the loan, the lender can seize the collateral and resell it to help pay the remainder of your loan if you default. But the lender cannot go after you in court to get you to pay back anything else if the collateral is worth less than what you still owe on the loan.
A common situation is when you have a non-recourse mortgage loan on a house. A recession hits, and you default on the home loan. If it is a non-recourse mortgage loan, the bank forecloses on you, sells the house, and that’s the end of it. They do not pursue legal action against you.
The Internal Revenue Service (IRS) will tax you on a lot of things, but since they do not consider a non-recourse loan as income, they do not tax you on it.
In This Article
Pre-Settlement Legal Funding and Taxes
Pre-settlement legal funding from High Rise Financial is a non-recourse loan with some special rules. If you are in the middle of a personal injury lawsuit and you have a lawyer representing you, you are eligible to apply. If you sustained serious injuries through the negligence of another, you may have high medical bills, and you may be unable to work.
As a result, you may need financial help to make ends meet while you wait for your case to settle or go to trial. By answering a few simple questions, our underwriters can determine how much money you may qualify for. Once you and your lawyer sign an agreement, we can have the funds in your account in as little as 24 hours.
And you do NOT have to report the settlement advance as income, and you won’t be taxed on it. You also don’t have to make monthly payments, and no interest will accrue. We charge a one-time flat fee, which is added to the legal funding amount. You only pay us back if you win your case. If you lose your case, you don’t pay us a penny.
Sound too good to be true? It’s not. Applying is free, and you are under no obligation to accept our offer. Apply online today with our Apply Now form. Or for more information, call our office at (866) 407-6404.
To apply for free, call (877) 735-0016
When You Win Your Case
Most clients to whom we offer pre-settlement legal funding win their cases. This can be either through a legal settlement or through a jury award. When you win, your lawyer will receive a check from the opposing party. They will then write a check to High Rise Financial, to pay us back the agreed-upon amount, which includes the amount we loaned you and our fee.
They will then pay any legal fees and other fees associated with your case. The remainder of the money is yours. Except the IRS may tax you on a portion of the settlement.
According to the IRS Publication on Settlements and Tax Liability, you may need to report some of the proceeds of your settlement as income. It all depends on the specifics of your settlement. You may wish to consult a tax attorney to ensure you fulfill your legal responsibilities.
In general, “if you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable.”
You Might Owe Taxes on a Portion of Your Settlement
- If your settlement includes reimbursement of medical expenses, and you took an itemized deduction for those on a previous tax return, you must include that portion as income the next time you file your taxes.
- If the settlement includes payment for mental anguish NOT RELATED to your own personal injury or illness, you may need to report that portion as income.
- Punitive damages are fully taxable as income and should be reported as such.
If You Lose Your Case
If you lose your case, as we stated before, you do not pay us anything. You also don’t have to worry about paying the IRS anything, as the pre-settlement legal funding is not taxable. It is a non-recourse loan, so you are not personally liable for any payments to any entity if you lose your case. It truly is a risk-free source of funding for personal injury claimants.
Apply Now for Tax-Free Non-Recourse Legal Funding
Non-recourse legal funding can help reduce financial stressors while you wait for your personal injury case to settle. Applying is free, and you don’t pay income taxes on your settlement advance. Pre-settlement legal funding from High Rise Financial is risk-free and can help tide you over financially while you and your lawyer fight for the compensation you deserve.
Get started by filling out the Apply Now form. For more information, call our office at (866) 407-6404.