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Posted by tomchand on March 13, 2008, 10:31 am
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A couple of questions and a couple of posts.
Taxpayer sells personal residence in about 2004 or so, Married Filing
Joint, and uses about 200K of the 500K exclusion. There was a suit
pending related to contamination on the site.
3 years later, in 2007 he receives about $100K legal settlement on the
contamination suit.
The lawyers take 1/3.
Understandably, his position is: (1) This settlement is linked to the
sale of the residence, and that liability really existed at that time
and so should not be taxable. (2) The legal fees are to get what was
originally rightfully his, he was only "made whole" by the settlement,
so legal expenses should be 2% misc deductible as protection of
assets.
What say you?
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Posted by Mark Bole on March 13, 2008, 2:11 pm
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tomchand@gwi.net wrote:
> A couple of questions and a couple of posts.
>
> Taxpayer sells personal residence in about 2004 or so, Married Filing
> Joint, and uses about 200K of the 500K exclusion. There was a suit
> pending related to contamination on the site.
>
> 3 years later, in 2007 he receives about $100K legal settlement on the
> contamination suit.
>
> The lawyers take 1/3.
>
> Understandably, his position is: (1) This settlement is linked to the
> sale of the residence, and that liability really existed at that time
> and so should not be taxable. (2) The legal fees are to get what was
> originally rightfully his, he was only "made whole" by the settlement,
> so legal expenses should be 2% misc deductible as protection of
> assets.
>
> What say you?
>
I say, the amount received was ordinary income to the extent that it was
used to pay legal fees, reportable on Form 1040 line 21, and deductible
subject to 2% AGI on Schedule A.
The remainder of the settlement, not used to pay legal fees, is capital
gain from the sale of the house.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by removeps-groups@yahoo.com on March 14, 2008, 1:31 pm
Please log in for more thread options > tomch...@gwi.net wrote:
> > Taxpayer sells personal residence in about 2004 or so, Married Filing
> > Joint, and uses about 200K of the 500K exclusion. There was a suit
> > pending related to contamination on the site.
Was the any personal injury? Amounts from personal injury are not
taxable (see http://www.irs.gov/pub/irs-pdf/p525.pdf and search for
"damages").
> I say, the amount received was ordinary income to the extent that it was
> used to paylegalfees, reportable on Form 1040 line 21, and deductible
> subject to 2% AGI on Schedule A.
You mean $33k other income, and $33k expenses on Schedule A (but only
amount over 2% of AGI deductible, subject to phaseout, subject to
AMT)?
> The remainder of thesettlement, not used to paylegalfees, is capital
> gain from the sale of the house.
Would any exclusion apply? I think not, because this is a new
transaction. And if it is a capital gain, would it be taxable at
15%. That does seem a bit strange to me.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Seth on March 18, 2008, 10:30 pm
Please log in for more thread options >> tomch...@gwi.net wrote:
>> The remainder of thesettlement, not used to paylegalfees, is capital
>> gain from the sale of the house.
>
>Would any exclusion apply? I think not, because this is a new
>transaction.
I think it's part of the sale.
Seth
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Mark Bole on March 18, 2008, 10:47 pm
Please log in for more thread options Seth wrote:
>>> tomch...@gwi.net wrote:
>
>>> The remainder of the settlement, not used to pay legal fees, is capital
>>> gain from the sale of the house.
>> Would any exclusion apply? I think not, because this is a new
>> transaction.
>
> I think it's part of the sale.
Just to reiterate my previous reply, I also think it is part of the
sale, eligible for the exclusion if all other tests are passed.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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