Legal fees

[mooretax]

Taxpayer inherited a house from her mother.
The house is in a different country (outside of USA).
Taxpayer lets a relative live in the inherited house for 3 years.
It is not a rental house. She wants somebody to live there when she
is living in USA.
She wants to sell the house but her relative refuses to move out.
She hires an attorney to take care of the eviction.
Can she deduct this legal fee after she sells the house and files her income tax?
Is this fee deducted as a selling expense?

Thank you for your advice.

[spanel]

Taxpayer inherited a house from her mother.
The house is in a different country (outside of USA).
Taxpayer lets a relative live in the inherited house for 3 years.
It is not a rental house. She wants somebody to live there when she
is living in USA.
She wants to sell the house but her relative refuses to move out.
She hires an attorney to take care of the eviction.
Can she deduct this legal fee after she sells the house and files her income tax?
Is this fee deducted as a selling expense?

Thank you for your advice.

I would deduct as legal fees. Did the relatives pay any expenses? Property taxes? Payment on the house, etc?

Chris

[FEDUKE404]

Not sure it's a valid sales expense

I would deduct as legal fees. Did the relatives pay any expenses? Property taxes? Payment on the house, etc?

Chris

Sounds dangerously like a personal expense (there was no "rental" aspect, apparently) and it would likely be a stretch calling the eviction fees something directly related to the sale of the property.

The opinions of others may differ. . .

FE

[mooretax]

Legal fees

I would deduct as legal fees. Did the relatives pay any expenses? Property taxes? Payment on the house, etc?

Chris

Taxpayer is living in USA. She does not want the house to be vacant. She lets her relative stay there to take
care of the house for free.

She pays the repairs, maintenance, tax and utilities.
She wonders if she sells the house she has to pay tax to the local government.
How can she claim this payment of tax on her tax return?

[Nashville]

Schedule A stuff

Sale of home never intended as a rental would take on the characteristics of Sch A personal deductions.

Legal costs can be considered as a cost to produce revenue (sale of house) and thus deductible as a misc deduction subject to 2%.

Not sure about the jurisdiction, but if she has to pay local property tax based on value for property, I believe this to be a legitimate deduction as "taxes" on the Sch A.

If there is INCOME tax at the local jurisdiction, the amount paid can be a CREDIT on personal income tax (See Form 1116). Since she is a US citizen, she has to report the sale of the property anywhere in the world, but would be entitled to the credit.

[FEDUKE404]

Questions unanswered

Sale of home never intended as a rental would take on the characteristics of Sch A personal deductions.

Legal costs can be considered as a cost to produce revenue (sale of house) and thus deductible as a misc deduction subject to 2%.

Not sure about the jurisdiction, but if she has to pay local property tax based on value for property, I believe this to be a legitimate deduction as "taxes" on the Sch A.

If there is INCOME tax at the local jurisdiction, the amount paid can be a CREDIT on personal income tax (See Form 1116). Since she is a US citizen, she has to report the sale of the property anywhere in the world, but would be entitled to the credit.

Still not sure I follow your logic. Consider:

I would like to sell my personal home, which was never used as a rental nor as an office-in-home. Before I could sell the home, an inspector advised me I had some problems and I eventually had to pay considerable legal fees to sue the company that had improperly installed a roof ten years ago that now leaks. I eventually win the lawsuit, and the company reinstalls (properly) a new roof. House is now marketable.

The legal costs would not be a sales expense. Are you saying the current legal costs could be a 2% miscellaneous deduction (the only area left)? Property was neither an investment property, nor an income-producing property.

As for this specific case, I just don't see the "deduction" as viable. One could also (perhaps) make the case that the foreign home is a "second home" and that can open another can of worms.

Rather curious why the "foreign country" is not being named. Did the taxpayer have a clear title to the property, especially since "relatives" were living in the house?? Will the US client have to file a "foreign" income tax return to show the sale??

There probably is a simple answer here, but I think a few more facts might be helpful. . .

FE

[Nashville]

Production of Income

Still not sure I follow your logic. Consider:

I would like to sell my personal home, which was never used as a rental nor as an office-in-home. Before I could sell the home, an inspector advised me I had some problems and I eventually had to pay considerable legal fees to sue the company that had improperly installed a roof ten years ago that now leaks. I eventually win the lawsuit, and the company reinstalls (properly) a new roof. House is now marketable.

The legal costs would not be a sales expense. Are you saying the current legal costs could be a 2% miscellaneous deduction (the only area left)? FE

Federal Duke, the legal costs would not be a selling expense. However since the home was to be sold (presumably) at gain, then the legal fees were incurred in connection with reportable income. Legitimate expense in the 2% category.

Agree there are unanswered questions about the foreign income tax. But if there is indeed a foreign income tax on the sale of the home, then taxpayer is entitled to the "Credit for foreign taxes paid" and would most likely have to fill out an 1116.

[Roland Slugg]

She wants to sell the house but her relative refuses to move out.
She hires an attorney to take care of the eviction.
Can she deduct this legal fee after she sells the house and files her income tax?
Is this fee deducted as a selling expense?

I sure would.