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From:  Lisa
Date:  Fri, 20 May 2005

My husband and I are in the middle of mediating a lawsuit over a home purchase. The home was fraudulently misrepresented and has many structural defects. We are suing for compensatory damages for the amount of $110,000.

Will we be taxed on this amount, since it represents a loss we have suffered on our investment? The lawsuit also calls for recission of the contract, or a buy back of the home.

Answer

Date:  Mon, 06 June 2005

Hello Lisa,

Amounts paid for legal judgments other than for physical personal injuries are taxable income.

Expenses for a personal residence are not deductible. A loss for the sale of a personal residence is not deductible.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

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