Basically, the settlement amount you received gets included as rental income, in the rental income section.
Your legal expenses associated with this are claimed the Rental Expenses section. The last screen in that expenses section is "Any Miscellaneous Expenses?" and that is where you would enter your legal costs.
If you did a repair to something, as opposed to the property improvement, that's deductible as a repair expense.
For the property improvement costs, that gets entered in the Assets/Depreciation section and depreciated over 27.5 years.
Overall, I would recommend that you report as much as you can as a property improvement, as the increase in basis will reduce your taxable gain when you sell.
Example: You had to replace a window, frame and all. That's a property improvement. Part of replacing that window was repairing a 1 inch hole in the sheet rock. That's "technically" a repair. But the window replacement and hole repair was done as a part of the same project. So I'd just include the cost of all of it in the property improvement.
