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Taxes on Lawsuit Settlement Income

In 2010 I received $10,000 from a lawsuit which was settled out of court. The payment was from a real estate firm that sold us a condo with defects and other misrepresentations related to the amount of condo fees. The $10,000 partially paid for the remediation of the defects.

Legal fees incurred related to this event in 2009 were $5,000. Legal fees incurred related to this event in 2010 were $13,000.

Is the $10,000 taxable income in 2010?

No deduction was taken for the legal fees in 2009. Could they have been deducted?

Can the $13,000 legal expense in 2010 be deducted as an itemized deduction in 2010. Can the whole $18,000 in legal fees be deducted in

2010?

In addition, expense larger than the $10,000 was paid to a construction company to do the remediation. Can this be deducted?

Thanks.

Reply to
Terry Faust
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If by remediation of the defects you mean reimbursement for fixing things in your condo, then the 10k is not deductible.

Not sure.

Not sure. No.

If this lawsuit is for your business, then deduct on Schedule C, or the appropriate line of 1120, 1120-S, or 1065. If the lawsuit is for your personal, I don't think it is deductible as only attorney fees related to taxable income are deductible. Anyway, if it were deductible, it would be deducted on Schedule A subject to the 2% haircuit (only the amount of all misc deductions above 2% of your AGI are deductible), where it is also subject to AMT (ie. it is not allowed under AMT) -- and these often but not always make the deduction useless.

My thinking is that since the 10k is a reimbursement, it is not taxable.

Reply to
removeps-groups

Was the condo personal (e.g. your residence) or business (rental property)?

Seth

Reply to
Seth

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