This year we signed a contract with a deposit to purchase real estate. We then found out the owner sold the real estate to another person. We settled the suit through arbitration for which we received $430,000. We had $28,000 in legal expenses. We would like to know what our options are for reporting this income.
Thanks, Bill
Report the entire amount of the settlement on line 21, Other Income, of Form 1040. Report the legal fees in the Miscellaneous section of Schedule A (and subtract 2% of AGI from the total of that section).
Shouldn't that be net of the returned deposit?
Yep, it sure should. Good catch.
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