I am posing this question in two parts. Otherwise, it gets too confusing.
I was a co-defendant in a law suit over an easement on undeveloped
land. The property is an investment
property which I periodically logged.
There was a mediated cash settlement and substantial legal fees. After a bit of research, it looks to me like
both settlement and legal fees are deductible, either as an expense or capital
expenditure. My guess is on capital expenditure
as all the income is capital gain.
First, is my guess right? Second,
what forms should handle?
The second part of my question is that the property was sold
(with a capital gain) in 2014, suit filed in ’16 and settled in ’17. How do I handle after-the-fact costs against
the capital gain? Filing an amended
return doesn’t seem right, as it would reference a future event. Reporting it on my 2017 return feels a little
awkward because the settlement diminishes the capital value of a property I no
longer own.
I appreciate any help, guidance or understanding anyone can
offer.
