Yes, the lawsuit settlement payment related to a tenant security deposit dispute for your rental property is generally tax deductible. Here's a clear and concise summary:
Deductibility:
- The payment is considered a business expense and can be deducted on your tax return
- You should report this payment as a rental expense on Schedule E (Form 1040), which is used for reporting income and expenses from rental real estate.
To enter your rental expense
- Open or continue your return.
- Navigate to the rentals section:
- TurboTax Online/Mobile: Go to rentals. - be sure to be signed in or use the magnifying glass to search for rentals and select the Jump to link.
- Answer Yes to the question Did you have any income from rentals or royalties?
- On the next screen, Let's see if you're a real estate professional, select any options that apply to you.
- On the screen What are you here to report?, select Rental property and Continue.
- If you have more than one rental property to report, no problem—just start with one, and we’ll come back to the other one(s) later.
- On the following screens, enter all the info we need about your rental property, including a description of the property, your rental income, any expenses and assets, and other less common situations about your rental.
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