In course of owning a second home, it was necessary to file a lawsuit against the local homeowners association to settle a dispute about the survey lines and title to a local roadway crossing my property. I prevailed in that suit; the legal fees I incurred were substantial. May I add those fees to my basis in the property when calculating a gain or loss upon sale? Note that IRS guidance in Pub. 551 gives an example of legal fees incurred to "clear a title." My situation, arguably, does deal with "title" to the roadway. Adding my costs to original basis will substantially eliminate any gain, thus an important consideration.
Yes, Pub 551 does address the cost of defending and perfecting a title. They do not give any additional information to clarify your question. If it were I, I would do so and also anticipate having to defend it at some point. The worst that can happen is that the disallow it. You will have lost nothing.
(See the attached screenshot below. Click to enlarge.)
Yes, Pub 551 does address the cost of defending and perfecting a title. They do not give any additional information to clarify your question. If it were I, I would do so and also anticipate having to defend it at some point. The worst that can happen is that the disallow it. You will have lost nothing.
(See the attached screenshot below. Click to enlarge.)