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jdedens88
New Member

Deduct attorney fees

I was injured by a motor vehicle and ended up paying attorney fee's after the settlement in 2016. most of it went to pay medical bills and the attorney and I was wondering if the attorney fee's were able to deducted? and if so where?

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1 Best answer

Accepted Solutions
JaimeG
New Member

Deduct attorney fees

Generally, you can't deduct fees paid for advice or help on personal matters or for things that don't produce taxable income.

  • If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income. BUT
  • If you receive a settlement for personal physical injuries or physical sickness, you must include in income that portion of the settlement that is for medical expenses you deducted in any prior year(s) to the extent the deduction(s) provided a tax benefit. If part of the proceeds is for medical expenses you paid in more than one year, you must allocate on a pro rata basis the part of the proceeds for medical expenses to each of the years you paid medical expenses. See Recoveries in Publication 525 for details on how to calculate the amount to report. The tax benefit amount should be reported as “Other Income” on line 21 of Form 1040.

This is where it gets tricky. The statement above (which is cited from the IRS) makes it seem that the attorney's fees would be deductible if you had itemized medical expenses. Unfortunately due to the nature of the Tax Benefits Rule the repayment of the prior Itemized Deduction only reverses a previously taken stance therefore the Settlement remains Non-Taxable Income so you cannot deduct attorney's fees in any case.

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1 Reply
JaimeG
New Member

Deduct attorney fees

Generally, you can't deduct fees paid for advice or help on personal matters or for things that don't produce taxable income.

  • If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income. BUT
  • If you receive a settlement for personal physical injuries or physical sickness, you must include in income that portion of the settlement that is for medical expenses you deducted in any prior year(s) to the extent the deduction(s) provided a tax benefit. If part of the proceeds is for medical expenses you paid in more than one year, you must allocate on a pro rata basis the part of the proceeds for medical expenses to each of the years you paid medical expenses. See Recoveries in Publication 525 for details on how to calculate the amount to report. The tax benefit amount should be reported as “Other Income” on line 21 of Form 1040.

This is where it gets tricky. The statement above (which is cited from the IRS) makes it seem that the attorney's fees would be deductible if you had itemized medical expenses. Unfortunately due to the nature of the Tax Benefits Rule the repayment of the prior Itemized Deduction only reverses a previously taken stance therefore the Settlement remains Non-Taxable Income so you cannot deduct attorney's fees in any case.

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