Recovered expenses from a Failed Real Estate Sale

[Abby83]

Failed sale of our primary residence in 2019. (In essence, breach of contract on the part of the realtor) We incurred numerous expenses as a result, and filed a lawsuit. Residence sold in 2020, all proceeds (plus savings) went into new home.

Lawsuit settled by insurance of realtor in 2022. Received 1099-MISC from our lawyer.

Expenses incurred are documented.

What forms need to be filed to provide documentation of the expenses vs. repayment?

[PattiF · Accepted solution]

To enter the payment from the settlement, you would enter the 1099-MISC as Other Income, and then enter the expenses as a negative number using the 1099-MISC format.

To enter the 1099-MISc that reported the lawsuit settlement:

Follow these steps in TurboTax Online:

• In the Federal section, under Your income and expenses
• Scroll to Other Common Income
• Select Form 1099-MISC
• Follow the Prompts and enter amount in Box 3, Continue
•  Describe the reason for this 1099-MISC box
• Do any of these uncommon situations apply? check last box
• Select No, it didn't involve work like my main job on Did the Lawsuit settlement involve work that's like your main job?
• Answer How often did you get income...Although you may receive this income every year, say that you only receive the 1099-MISC only in 2022, not in previous years and not in 2023, you will then have the screen where you can say that it did not involve an intent to earn money.
• Select No on Did the Lawsuit settlement involve an intent to earn money?

Then follow the same steps and use a negative number to enter the expenses that you paid  to file the lawsuit

[Mike9241]

did you deduct those expenses? probably not proper if you did since they would be personal expenses.  if you did not then only a recovery in excess of the expenses would be taxable.