The problem is, that all income is assumed to be taxable unless there is a legal principle, deduction, or section of the law that says otherwise. The payment of $30,000 to you could be treated as purely taxable income, with no deductions for legal fees and expenses (because those deductions were eliminated for non-business property for 2018-2025 by the 2017 tax reform law).
However, because this settlement is for loss of value of property that you owned, you can take it as compensation for that loss in value, but that means reducing your basis. In other words, if the condo cost $200,000, your new basis is $170,000. That will result in a larger capital gain when and if you sell. But it is still to your advantage to treat it this way, because capital gains are taxed at a lower rate, and future money is cheaper than present money due to inflation. So paying an extra $4500 in capital gains tax 5 years from now is better than paying an extra $6600 in income tax now.
The settlement is compensation for lost property value. The fact that you used some of the money to repair the damage (by adding proper sound insulation) would have been an addition to your cost basis had you made the improvement to your unit (maybe by messing with the ceiling?). But because you improved someone else's unit, you can't include that as an adjustment on your cost basis.
(As an example, suppose the power company comes on my property and destroys a mature oak tree to fix a power line, they pay me $5000 in compensation for the lost property value. I pay $1000 to plant a new tree. My basis is reduced $5000 by the payment for lost value, and then increased by $1000 since improvements add to the cost basis -- no matter where the money came from.)
