Received court award of $8000 against non-legal expenses of $9100. Expenses were incurred because of buyer defaulting on home sale and then suing me for their earnest money, e.g, trips out of state to attend court, maintaining empty home and temporary living arrangements, non-refundable loan costs for new home purchase that fell through because of default on sale of my home. What if any of these expenses can I deduct?
Unfortunately, expenses for resolving nonbusiness tax issues are miscellaneous itemized deductions and are no longer deductible.
Legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax are miscellaneous itemized deductions and are no longer deductible.
You can deduct legal expenses that are related to doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business. You can deduct expenses of resolving tax issues relating to profit or loss from business (Schedule C), rentals or royalties (Schedule E), or farm income and expenses (Schedule F) on the appropriate schedule.
See IRS Publication 529 Miscellaneous Deductions Page 3 for further information.
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Thanks so much for your response. Sorry I wasn't more clear about the expenses. They were not to resolve a tax issue. A buyer defaulted on a contract to purchase my home. I had moved out in anticipation of the closing date so I had expenses to maintain two residents and store my furniture, non-refundable mortgage related expenses for a new place I had under contract and lost because of the buyers default. In addition the defaulted buyer sued me because I wouldn't release the earnest money to him. This dragged on for two years and I had to travel out of state 3 times to attend court. The judge ordered him to reimburse most of my expenses. Now I have a W9 showing them as income. Do I pay income tax on the reimbursed (non legal) expenses. When I paid for them it was money I had already paid income tax on when I received the distribution from my IRA.
Thanks for your help. This has caught me by surprise
Did you actually get a W-9? A W-9 is used to provide tax payer information to another person.
Use Form W-9 to provide your correct Taxpayer Identification Number (TIN) to the person who is required to file an information return with the IRS to report, for example:
- Income paid to you.
- Real estate transactions.
- Mortgage interest you paid.
- Acquisition or abandonment of secured property.
- Cancellation of debt.
- Contributions you made to an IRA."
But you should have gotten another form, such as a version of a 1099 that you would use, and yes, I do believe you have to pay income tax on that money, since you earned it back.