Discussion:OUT OF COURT SETTLEMENT

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Discussion Forum Index --> Advanced Tax Questions --> OUT OF COURT SETTLEMENT
Discussion Forum Index --> Tax Questions --> OUT OF COURT SETTLEMENT

Seaside (talk|edits) said:

14 March 2008
Client has a beach house as a second home. Never rented out. Agreed verbally to sell at a set price, then backed out. Paid $20,000 plus attorney fees in an out of court settlement. Can anything be deducted anywhere? Or could all expenses be added to basis? Can't find anything on this type of situation anywhere! Thanks for any guidance you can provide!

RoyDaleOne (talk|edits) said:

15 March 2008
As far as I know the real estate must be in writing in order to be binding. What gives?

PostingFromWork (talk|edits) said:

15 March 2008
Ahhh, the good ol' statute of frauds!

I am leaning towards non-deductable personal expense. Not sure how it would be shoe-horned into §212 based on the facts provided.

Dennis (talk|edits) said:

15 March 2008
The shoehorn would be Reg. 1.212-1(k).

PostingFromWork (talk|edits) said:

15 March 2008
Reg 1.212-1(k) (emphasis added)

"Expenses paid or incurred in defending or perfecting title to property, in recovering property (other than investment property and amounts of income which, if and when recovered, must be included in gross income), or in developing or improving property, constitute a part of the cost of the property and are not deductible expenses. Attorneys' fees paid in a suit to quiet title to lands are not deductible; but if the suit is also to collect accrued rents thereon, that portion of such fees is deductible which is properly allocable to the services rendered in collecting such rents. Expenses paid or incurred in protecting or asserting one's right to property of a decedent as heir or legatee, or as beneficiary under a testamentary trust, are not deductible."

I stand by my earlier statement that they are not deductable expenses. I should have added that they are added to basis.

Dennis (talk|edits) said:

15 March 2008
If you are emphasizing, why did you omit constitute a part of the cost of the property which is an addition to basis, no?♫

PostingFromWork (talk|edits) said:

15 March 2008
Yes, but addition to basis is not a deduction.♪

I think we're saying the same thing...

Seaside CPA (talk|edits) said:

15 March 2008
Thanks for the input. This was all I could find on it also. Just wanted to make sure no one knew of anything that I could have been missing!

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