Legal fees

[Margaret CPA in OH]

Client had issues with realtor so went to attorney to resolve. Fees were $9000. As this sort of was related to getting her house sold, I am inclined to think expense of sale although not directly. Because the sale did not result in any taxable income and was not business related I think it does not have a place on Sch A. Other thoughts? I suspect she is expecting a deduction.

Thanks.

[Margaret CPA in OH]

Bump - anyone?

[ILLMAS]

see point #2

http://www.dailyfinance.com/2010/03/09/10-expenses-you-may-think-you-can-deduct-on-your-taxes-but-you/

[Margaret CPA in OH]

Thanks, MAS, I knew that much. The question relates to whether this goes directly to the sale of her home because it isn't on the closing statement. She did have a home office so the point may be stretched, really thin, that it was protecting business interest but I don't like that. I really don't think it goes anywhere but always look to this board when in doubt and cannot find specifc, on point references. And I do look first...

Thanks again!

[ILLMAS]

Sorry you are correct, I did not read your question properly, but I would say yes if she/he was defending her property.

[Margaret CPA in OH]

Thanks again, MAS. I think I need details as to exactly why she had to hire an attorney. If it was just an issue with a particular realtor and maybe not good marketing or disagreements about Open Houses or some such, well, need more info! If an expense of sale there is no difference. If itemized deduction, a change from owing $600+ to a refund of $100+. So it matters.

[Pacun]

Add it to the basis of the house. No deduction.

[Margaret CPA in OH]

Thanks, Pacun. Rationale? Cite? Other attorney costs on the closing are expenses of sale. I will find out more as to the reason yet.

[Margaret CPA in OH]

Here's the scoop:

I had to hire an attorney to help sell my house because:

• My real estate agent, BY with Comey and Shepherd was negligent in enforcing the terms of the listing contract on my behalf.
  • I was not informed of a change in buyer financing from FHA to DOA until the loan was denied by the DOA, 5-6 weeks after listing contract was signed. The change from FHA to DOA required my signature on a contract amendment. All this caused a 4-5 week delay in closing. The buyers eventually got an FHA loan approved.
  • It was at the point of learning (March 17. 2012) that the buyers had applied for a DOA loan without my approval of this change that I hired an attorney.
  • Although I met every timeline specified in the contract for the seller, most of the timelines specified in the contract for buyers were not met.
• The negligence of BY led to her paying my rent from March 24? (I will get you date) - April 6th so that I would not lose the house I rented due to delays in closing on the house I sold.
• My attorney had to talk with landlords to work out this agreement, and also to get penalty fees waived for late rent and the breaking of the lease at one point (which did not actually happen) after buyers' loan was not originally pproved.
• There is a ton of documentation to show the negligence - communication between my agent, Comey and Shepherd broker, Title Company and me; and between my attorney and the Comey and Shepherd Attorney.
• SA of Comey and Shepherd had KB, the attorney for Comey and Shepherd, put a lien on my house on the day of closing just prior to closing. My attorney took legal measures to get this lien released.
  
• The reason the lien was put on my house, according to VL who was the attorney who represented the Comey and Shepherd agents, is that I was not going to show up at closing. I had, however, signed the contract addendum that to appear at closing on April 10th, 2012 at 4:00 pm and all parties had a copy of this addendum that I signed. I always had every intention of attending closing and told no one otherwise.
• My attorney attended closing with me to protect my interests:
• He asked KB at closing if he was legal representation for Comey and Shepherd in matters related to the sale of my home and KB replied, "No." We learned, however, that KB was representing Comey and Shepherd on the lien placed on my house. So, he directly lied to my attorney.
• When asked by the Title Company at closing if I had any liens placed on my home, I replied "No". However, the lien had been filed on my home just prior to closing by KB, representing SA. BY knew about the filing of this lien. All 3 Comey and Shepherd folks were silent during me being questioned by the Title Company about whether were any liens on my home.
• My attorney and I did not find out about the lien until April 11, 2012 when a copy of it arrived in my mail box.

So it appears as though Pacun has the answer as this was directly related to buying or selling an investment, her house and could reduce capital gain, if any. Sadly that will not help as she already has a small loss.

Thanks all for this exercise. I feel for her but it is what it is. Profound, no?