My husband and I recently won ( settled out of court) a wrongful foreclosure case. Our attorney received 1/3 and we received the remaining balance. Today we get the tax document and all it says is the total amount of the settlement amount. Are we expected to pay taxes on it all? What about the space on the document they sent that is specifically for payments to an attorney for legal fees? Someone tried to tell us that we didn't have to pay taxes at all on an out of court settlement because it could be considered a gift, don't I wish!
The settlement is probably considered income for tax purposes.
You should consult a CPA or a tax lawyer for advice about this.
This answer is not intended to be legal advice to be relied on by the asking individual, as legal advice of that level can only be provided after a review of necessary case materials and input from the asking party. Further, no other person should rely on this answer without consulting an attorney as to how it impacts on his or her case. No attorney-client relationship is formed by answering this question.
You absolutely nee to seek a professional tax opinion from either a qualified/reputable tax attorney or CPA who regularly handles settlement taxation. With the proper advice, you may be able to save yourselves a lot of money. Without proper advice, you will most certainly encounter tax issues. Be cautious because many attorney admittedly do not understand settlement taxation. You need to pay an expert. Best wishes!
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