If the lump sum settlement for my long term disability is taxable as income, are the attorney fees deductible?

[jsshrimp1]

I'm already aware I have to pay taxes, but the attorney fees were 33% of the settlement and I had to pay back the insurance company for SS disability I received. By the time I was done there was almost nothing left to live on. Can I at least deduct the attorney fees?

[Marketstar · Accepted solution]

Yes, your attorney fees are deductible to the extent of your taxable income.

For instance, if 50% of Social Security income is taxable, then 50% of legal fees are deductible.

To deduct legal fees, you must itemize deductions on Schedule A, and the sum total of your miscellaneous deductions including your legal fees must exceed 2% of your Adjusted Gross Income.

Given the above limitations you may not be able to benefit from your legal expenses.

To deduct legal fees:

• Type in legal expenses, deduction the search box, top right of your screen, then click the magnifying glass

• Click the jump to legal expenses, deduction link in the search results

• Follow to prompts and online instructions

[rblewis7]

I thought this deduction was taken away last year? When I do that search a "jump" link does not appear.

[pricefam31]

I found this lawyer's summary incredibly helpful on the point.  Whether the LTD benefits are considered income depends on a few factors (grab your pay stub!). And if it is considered income, and the LTD benefits were paid in response to an ERISA denial, attorney fees and costs may be deductible above-the-line.  

https://disabilitydenials.com/disability-insurance-claims/can-you-deduct-attorney-fees-and-expenses-...