First check with the attorney to determine if any of the settlement is taxable.
If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income.
Other items such as lost wages or punitive damages will be taxable. Review the IRS information link for clarification with your settlement.
The expenses that can be used if paid when you buy a home are mortgage interest, mortgage insurance premiums (entered under mortgage interest section), points or loan origination fees, prorated share of property taxes.
In TurboTax Deluxe follow these steps:
If you didn't have a full year or the deductions are not greater than your standard deduction, the standard deduction will be used so put every item that applies to you including donations and any out of pocket job related expenses, etc.