Deduct attorneys fees

[bengelking2]

I received a judgement settlement in 2017. I did not write off attorneys fees in the year the judgement was awarded because there were many appeals. Can I file an amended return to write them off in the year they occurred and am I limited in what amount I can write off? In other words, can I write off more than I recovered?

[PatriciaV]

It depends. You can report allowable legal fees in the tax year for which the fees were paid. If allowable, there is no limitation.

You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax. Legal Fees of this type are included on Schedule A as a Miscellaneous Itemized Deduction, subject to a 2% limitation based on your Adjusted Gross Income. 

Legal fees associated with discrimination lawsuits are deductible above the line, on the first page of your 1040, to determine your adjusted gross income.

Other legal fees are not tax-deductible.

[bengelking2]

We were really not attempting to produce income but we did receive a judgement. The judgement was granted in 2014, but then there were appeals so we did not get paid until 2017. In addition, they had gotten a judgement against us, so the final settlement had those offsets plus interest paid and interest earned. The pipeline company did not issue us a 1099 either. But the check was written on their right of way account.

[PatriciaV]

If the payment you received is taxable, then you may report the legal fees.

[bengelking2]

So if they did not issue a 1099, but I have a statement of all the offsets, their judgement against us, our judgement against them and interest both ways, what amount do I report as income? The net amount that the actual check was for? Or do I report the gross amount of the judgement plus the interest? In which case can I write off the interest we paid them? And the payment of the judgement they had against us? Thanks for your help by the way. This is too complex for anyone to understand!

[PatriciaV]

You may wish to consult your attorney for a final answer in this situation. It would appear you would report only the money you were paid, but there may be additional factors that would influence how you report this transaction.