Can I adjust the basis of my second home by adding legal fees incurred for a lawsuit vs. community HOA to establish proper boundaries of an established roadway?

[mrdonsmith2]

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.

[Coleen3 · Accepted solution]

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.

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