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Marvin,EA, Enrolled Agent
Category: Tax
Satisfied Customers: 1672
Experience:  Enrolled to Represent Taxpayers Before The IRS
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In summer 2008 I purchased a home (primary residence) in the

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In summer 2008 I purchased a home (primary residence) in the Dallas-Fort Worth area. A few months later we signed a mineral lease and received a sizeable bank draft as a bonus (this practice is quite common as the area sits above the Barnett Shale natural gas formation). Unfortunately, the bank draft was cancelled when the petroleum company found that the prior owners of the home had signed their own mineral lease the day before closing on the real estate sale. I sought legal advice and am currently sueing the sellers for breach of contract and several fraud claims as their actions were in clear violation of the real estate contract we had in place at the time they signed their mineral lease, and they eliberately concealed their action in order to induce me to go through with closing on the real estate transaction.
During 2009 I paid several thousand dollars in attorney fees to bring suit against the sellers to recover the bonus money and other damages that I lost. At present the suit is still pending. My reading of the relevant tax publications indicates that the attorney fees I paid in 2009 are deductable (to the extent they exceed the 2% income threshold) since they were related to recovery of taxable income. Is my interpretation correct?

Hello and thanks you for using Just Answer. Your interpretation is correct. Individuals can generally deduct legal expenses incurred in attempting to produce or collect taxable income or that are paid in connection with the determination, collection or refund of any tax.


Legal fees are reported on Schedule A as itemized deductions subject to the 2%-of-AGI floor.

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