Deducting Legal Expenses / Income from a Suit

[Davidca]

What is the name of your state? Calif

I sued a guy in Arizona in small claims court. He ripped me off in 2003. Most of my expenses (court/legal costs) were in 2004. I won in 2004. I collected in 2005. My questions are :
1) Are these court/legal expenses tax deductible?
2) If not, can I deduct them against the income of the suit?
3) Is the money I received from the suit considered damages and thus I do not have to report it as income?

[bearflag70]

Were the costs included as part of the judgment?

[Davidca]

Some were and some were not.

[Davidca]

Can anyone answer this question?

[Davidca]

Please....Anyone?

[ajk_blue]

Most damage awards must be included in gross income, unless the damages were awarded in connection with a physical injury (which does not seem to by your case).

You cannot offset the award by the court/attorney costs. You can, however, deduct these amounts "below the line" as a miscellaneous deduction on your tax return. These types of deductions are subject to pretty stringent limitations, so there is a good chance that they will be of no use to you.