Legal expenses related to acquisition price of investment property

[jmc]

A client buyer received a land instead of original loan receivable from a seller. The buyer paid off the purchase loan. Now, the seller alleged that the buyer committed a fraud at the time of sale because buyer forced seller to transfer the land, when seller had better price offers. Seller filed a lawsuit for the damage claim to pay for the sales price difference.
Is there any way for the buyer to deduct the legal fees?
Normally, legal fees are not deductible if it is for the acquisition of the property. But, sometimes it may be deductible in case of investment property as 2% AGI misc. deduction. I tried to find regulations or court cases but failed to find. Please help.

[ChEAr$]

A client buyer received a land instead of original loan receivable from a seller. The buyer paid off the purchase loan. Now, the seller alleged that the buyer committed a fraud at the time of sale because buyer forced seller to transfer the land, when seller had better price offers. Seller filed a lawsuit for the damage claim to pay for the sales price difference.
Is there any way for the buyer to deduct the legal fees?
Normally, legal fees are not deductible if it is for the acquisition of the property. But, sometimes it may be deductible in case of investment property as 2% AGI misc. deduction. I tried to find regulations or court cases but failed to find. Please help.

I gather that the transfer has already been accomplished and titled transfer, and
it is done, except that now, some time later, the seller comes up with this suit, right?

If so, any legal costs have nothing to do with the basis of the land, but are for the
defense of investment property, therefore schedule a deduction.
probably no court cases, because it's so simple, you reckon? (grin

[New York Enrolled Agent]

ChEAr$

Take a look at this Regulation. What do you think?

Reg §1.263(a)-2. Examples of capital expenditures.
The following paragraphs of this section include examples of capital expenditures:
...
(c) The cost of defending or perfecting title to property.

[jmc]

CCH Federal Tax Advisor

I think is little different from defending or perfecting title to property.
I found the following paragraph from CCH Federal Tax Advisor 12,322 Signal section.

"However, this amount would probably be a deductible loss, assuming that investment property is involved."

I am trying to find any court cases or other authoritative document to back up this point.

[ChEAr$]

ChEAr$

Take a look at this Regulation. What do you think?

Reg §1.263(a)-2. Examples of capital expenditures.
The following paragraphs of this section include examples of capital expenditures:
...
(c) The cost of defending or perfecting title to property.

As Ronald Reagan was fond of saying, "Well... THERE you go again!"
(quoting the regs.) grin

[ChEAr$]

Joan, have you looked for tax court cases? I think I know someone who is rather
knowledgeable on those.