Can I offset reimbursement from a settlement of a civil law suit against the payments I made to my lawyer who handle the case?

[sdavis3625]

I've settled in a civil law suit but the settlement payment is far less than the amount of money I have paid to the lawyer who handled my case.  I want to know if I can offset my legal fees against the settle reimbursement?  If not, am I able to write-off legal fees paid to my lawyer as a deductible?

[Opus 17 · Accepted solution]

 If the settlement is not considered taxable income, you can't deduct your expenses. If the settlement is considered taxable income, then you deduct your legal expenses as a miscellaneous itemized deduction subject to the 2% rule on schedule A. 

 Legal settlements are taxable or non-taxable based on the character of the income that they represent. For example, a settlement for lost wages is taxable because wages are taxable.   A settlement for physical injury  or physical damages to property is not taxable, However, if part of the settlement includes punitive damages or damages for pain and suffering, that is taxable.

[sdavis3625]

Thank you for your assistance.  Helpful information.

[TaxGuyBill]

In a few circumstances (such as some discrimination lawsuits) the lawyer fees can be a direct deduction on Page 1 of Form 1040 (without the 2% limitation).