You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination.

Per IRS Publication 525 Taxable and Nontaxable Income, page 32:

Deduction for costs involved in unlawful discrimination suits. You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in section 62(e), a claim against the U.S. Government, or a claim under section 1862(b)(3)(A) of the Social Security Act. You can claim this deduction as an adjustment to income on Schedule 1 (Form 1040), line 24h. The following rules apply.

• The attorney fees and court costs may be paid by you or on your behalf in connection with the claim for unlawful discrimination, the claim against the U.S. Government, or the claim under section 1862(b)(3)(A) of the Social Security Act.
• The deduction you're claiming can't be more than the amount of the judgment or settlement you're including in income for the tax year.
• The judgment or settlement to which your attorney fees and court costs apply must occur after October 22, 2004.

To report this in the TaxAct^® program:

1. From within your TaxAct return (Online or Desktop), click Federal (on smaller devices, click in the top left corner of your screen, then click Federal).
2. Click the Other Adjustments dropdown, then click Other adjustments.
3. On the screen titled Other Adjustments - Miscellaneous, scroll down to the Qualified attorney fees paid after 10/22/04 for unlawful discrimination section, and enter the amount.
4. The TaxAct program will report the fees as "UDC" in the Adjusted Gross Income section of IRS Form 1040.

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