Taxes on Lawsuit Settlement Income

[Terry Faust]

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.

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"Terry Faust" <mg...@comcast.net> wrote in message
news:f9p7r79qis1phfhga...@4ax.com...

> 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?

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

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

Not sure.

> 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?

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.

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

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

[Seth]

In article <f9p7r79qis1phfhga...@4ax.com>,

Terry Faust <mg...@comcast.net> wrote:
>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.

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

Seth