In some cases settlement payments for personal lawsuits like housing discrimination are tax-deductible. Here's a breakdown:
Settlement payments for personal lawsuits (like housing discrimination) are not tax-deductible if the case is personal (e.g., a dispute with a tenant in your private residence).
Exception:
If the lawsuit relates to a business activity (e.g., you operate rental properties as a business), the settlement may be deductible as a business expense under IRC §162.
Key Points:
Personal legal settlements = Not deductible
Business-related settlements = Possibly deductible if they are ordinary and necessary expenses.
Official IRS Links:
IRS Publication 535 – Business Expenses
