Unfortunately, the total amount of the settlement is considered taxable income. You may be able to claim the legal fees as a Miscellaneous Itemized deduction.
Taxable legal settlements are entered under Income
from 1099-MISC, even if you didn't receive Form 1099-MISC.
See these instructions:
https://ttlc.intuit.com/replies/3302162
You may be able to deduct the legal fees, although the rules are complex. Legal Fees are
included on Schedule A as a
Miscellaneous Itemized Deduction,
subject to a 2% limitation based on your Adjusted Gross Income. (TurboTax will
make this determination for you.)
Search on
"legal expenses, deduction" and click the "jump to" link to
go directly to the start of this topic. Be sure to read the blue links ("Learn More") on the interview pages.
For more help, see IRS Settlements Brochure
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