Legal settlement on sale of house > 2 yrs

I say, the amount received was ordinary income to the extent that it was used to pay legal fees, reportable on Form 1040 line 21, and deductible subject to 2% AGI on Schedule A.

The remainder of the settlement, not used to pay legal fees, is capital gain from the sale of the house.

-Mark Bole

Was the any personal injury? Amounts from personal injury are not taxable (see

You mean $33k other income, and $33k expenses on Schedule A (but only amount over 2% of AGI deductible, subject to phaseout, subject to AMT)?

Would any exclusion apply? I think not, because this is a new transaction. And if it is a capital gain, would it be taxable at

I say he has an additional $100,000 of gain excludible under Section

Although I didn't state explicitly, in my reply I assumed the portion of the settlement that was capital gain on the sale of the house would also be excludable under Section 121, if all the other requirements had been met at time of sale.

-Mark Bole

Which part of section 121 allows him to treat this 100k received in

We don't know the nature of the judgment. But if it was for a reason that resulted in the sale being for less than $100,000 than it should have been, I'd think it would be allowed as gain from the sale of property.

To my mind it's similar to an installment sale.

Stu

I think it's part of the sale.

Seth

Just to reiterate my previous reply, I also think it is part of the sale, eligible for the exclusion if all other tests are passed.

-Mark Bole

The part of Section 121 that allows him to exclude the first $250,000 ($500,000 on a joint return) of gain realized on the sale of a qualified personal residence.