Recovering a non-business bad debt

[green_growler]

In 2013 I obtained a judgment of $21,000 for a non-business loan that was in default. After a failed attempt to collect, I wrote it off as a non-business bad debt and reported it as a short-term capital loss. In 2021 through a new collection effort, I was able to reach a settlement with the debtor for $29,000 because the debt had appreciated (Minnesota District Court uses 4% annually for judgments). I plan to report the $21,000 as a short term capital gain because it is a recovered non-business bad debt. I have two questions:

1. Can I subtract legal fees of $3000 for the collection attorney from the $21,000 and report the remainder as a short-term capital gain?
2. Do I have to report the additional $8000 ($29,000-$21,000) as income? Judgments are generally not taxed. Interest is taxed.

[Mike9241]

Most Personal Legal Fees Are Not Deductible
If you incur any type of legal expense for a personal reason the TCJA of 2017 no longer allows you to deduct these fees. 

Personal Legal Fees You Can Deduct
You can only deduct a handful of personal legal fees under current tax law. They include:

Legal fees in employment discrimination cases (where the you as the taxpayer are the plaintiff): The deduction is limited to the total amount of the your gross income.
Claims against the federal government for damage to property: If you are a deployed soldier and your home is damaged while you are gone, you can sue Uncle Sam for damages.
Whistleblower rewards: Say you report a person or business for tax fraud or evasion. If that person or business is caught, then you will be paid a percentage of the amount that was evaded. This deduction is limited to the amount that you are paid.

so your legal fees would not be deductible.

the interest on the judgment is taxable.