Attorney fee's

[Harvey Lucas]

My client was trying to borrow 1.6 million dollars.

He was going to use the money to:

Pay of his home $400,000
Pay off his rental house $400,000
Buy some more rental property $800,000

He signed off on the loan, but before taking the money, realized the fee's and interest were not what he agreed, and he refused the money, and claimed that he was not obligated to complete the transaction.

The loan company is suing him for $100,000 in damages saying he was obligated.

Win or lose, he will not get the loan proceeds.

He hired an attorney to defend himself.

So far he has spent $40,000 in leagl fee's.

I can't find anything in Tax Book that address's this directly.

Are any portion of these legal fee's deductible?

Or, perhaps some portion of them could be added to cost basis of Home?, existing rental property?, rental property he intended to buy but then did not?

Thank You,

Harvey Lucas

[Bees Knees]

TTB, page 4-26:

Legal fees related to producing or collecting taxable income or
getting tax advice is deductible. Deductible legal expenses also
include:
• The cost of either doing or keeping a job, such as expenses paid
to defend against criminal charges arising from the taxpayer’s
job.
• The cost of tax advice related to a divorce if the bill specifies how
much is for tax advice and it is determined in a reasonable way.
• The cost of collecting taxable alimony.

Trying to obtain a loan for your house has nothing to do with producing or collecting taxable income. Trying to obtain a loan for your rental property does have something to do with producing taxable income.

I would take the business percentage of the legal fees on Schedule E.