Legal Settlement

[LJS5]

Sued my HOA over violating Covenants and Restrictions that impacted my primary residence.

We settled before the court date and the settlement matched what I had paid the attorney over the 36 month period.  

Can I deduct to offset the 1099 given and how ?

I guess I'm not understanding how I paid the attorney in POST tax dollars to essentially get  that amount back 3 years later. I made NO Income .  Paid through HOA insurance company 

Ty

[DianeW777]

Settlements that are not related to physical injury or sickness are generally taxable. They include but are not limited to:

1. Punitive damages
2. Emotional distress and mental anguish (unless tied to physical injury or sickness)

The income is entered by following the steps in the link below.

• Where do I enter an award from a taxable legal settlement?
• IRS Publication 4345

For better or worse there is no deduction since the Tax Cuts and Jobs Act (TCJA) removed miscellaneous deductions that were allowed when over 2% of adjusted gross income (AGI). 

Tax Implications of Settlements and Judgements

The general rule regarding taxability of amounts received from settlement of lawsuits and other legal remedies is Internal Revenue Code (IRC) Section 61. This section states all income is taxable from whatever source derived, unless exempted by another section of the code. IRC Section 104 provides an exclusion from taxable income with respect to lawsuits, settlements and awards. However, the facts and circumstances surrounding each settlement payment must be considered to determine the purpose for which the money was received because not all amounts received from a settlement are exempt from taxes. The key question to ask is: "What was the settlement (and its corresponding payments) intended to replace?"