Mrs. Evelyn Baker sued her stockbroker for mismanagement of her account. The broker ultimately settled the case by paying her $250,000. The payment represented the loss in value of Mrs. Baker’s stock portfolio attributable to the mismanagement. Be-cause the payment was made with respect to capital assets, Mrs. Baker could report the payment as a $250,000 capital gain (rather than ordinary income) on her Form 1040. Her legal fees for the lawsuit totaled $70,000. Can Mrs. Baker treat the fees as a capital loss by simply offsetting them against the settlement and thereby include only $180,000 net capital gain in her AGI?
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