Are My Legal Fees Deductible?
Many clients wonder if the attorney fees they have incurred during their divorce are tax deductible. Generally, the IRS says no. According to Internal Revenue Code (IRC) § 262 (a), personal, living, or family expenses are not permissible deductions. Therefore, a spouse may not deduct attorney fees incurred in connection with a divorce or separation because these matters are considered to be personal. However, there are exceptions to this rule.
Legal fees in connection with advice regarding alimony qualify as a legitimate legal fee deduction. Why? IRC § 212(1) allows a deduction for expenses incurred for the production or collection of income. Therefore, those legal fees attributable to obtaining alimony or incurred to collect alimony arrears are deductible. However, attorney fees incurred by a spouse to defend an award or collection of alimony are not deductible.
Another legitimate deduction is for expenses related to tax advice. IRC § 212(3) allows deductions for all ordinary and necessary expenses paid or incurred during the taxable year in connection with the determination, collection, or refund of any tax. In the context of a divorce case, this means advice regarding transfer of property; dependency exemptions; characterization and treatment of alimony obligations; and income, estate, and gift tax consequences resulting from a trust to discharge an alimony obligation are permissible deductions to the taxpayer who incurs these expenses.
If you are planning to deduct some of your legal expenses, your attorney will need to determine what portion of their bill relates to deductible advice and provide an itemized bill. Otherwise, your legal fees will likely not be considered legitimate deductions by the IRS. Since tax laws continually change it is important to consult with your attorney and/or a tax professional for specific tax advice.