Are lawsuit settlement payments deductible?

In some cases  settlement payments for personal lawsuits like housing discrimination are tax-deductible.  Here's a breakdown:

Settlement payments for personal lawsuits (like housing discrimination) are not tax-deductible if the case is personal (e.g., a dispute with a tenant in your private residence).

Exception:
If the lawsuit relates to a business activity (e.g., you operate rental properties as a business), the settlement may be deductible as a business expense under IRC §162.

Key Points:

Personal legal settlements = Not deductible

Business-related settlements = Possibly deductible if they are ordinary and necessary expenses.

Official IRS Links:

IRS Publication 535 – Business Expenses