This bill allows taxpayers to deduct legal fees and court costs from their gross income when they win or settle claims related to consumer protection violations, covering a wide range of unlawful acts.
Catherine Cortez Masto
Senator
NV
The "End Double Taxation of Successful Consumer Claims Act" allows taxpayers to deduct attorney fees and court costs related to claims of consumer protection violations. This deduction applies to a broad range of violations under federal, state, and local laws, including those related to real estate, lending, credit, debt collection, product safety, and more. This change applies to attorney fees and court costs paid in taxable years ending after the enactment date of this Act, for judgments or settlements occurring in those taxable years.
New Bill Lets Consumers Deduct Legal Fees in Successful Protection Claims, Starting 2024
The "End Double Taxation of Successful Consumer Claims Act" aims to fix a tax quirk that can hit consumers who win legal battles against businesses. Right now, if you win a settlement, you might have to pay taxes on the entire amount, even the part that went straight to your lawyer. This bill changes that by allowing an "above-the-line" deduction for attorney fees and court costs in successful consumer protection cases.
Slashing Taxes on Settlements
This bill lets you deduct those legal fees before calculating your adjusted gross income (AGI). That's a big deal because it lowers your taxable income directly, potentially saving you a significant chunk of change. It applies to a wide range of consumer issues, too – think faulty products, unfair debt collection, shady real estate deals, or violations of your rights under laws like the Fair Credit Reporting Act or the Truth in Lending Act (Section 2(a)(2)). The deduction kicks in for any taxable year ending after the bill is enacted, covering judgments or settlements that happen in those same years.
Real-World Wins
Imagine a homeowner successfully sues a contractor for shoddy work that violated state consumer protection laws. Under current rules, they might get hit with taxes on the full settlement, even if a third went to legal fees. With this bill, they could deduct those fees, reducing their tax bill and keeping more of their winnings. Or consider a small business owner who wins a case against a supplier for delivering defective goods. This change could make a real difference in their bottom line, especially since attorney fees can easily eat into a settlement.
Leveling the Playing Field
This bill is all about making sure consumers aren't penalized for fighting back against illegal business practices. By letting people deduct legal costs, it aims to level the playing field and make it easier to hold companies accountable. While this will certainly help many consumers, there are some potential challenges. Some might try to inflate legal fees to get a bigger deduction, or claim unrelated legal costs as "consumer protection" related. However, the broad definition of "consumer protection violation" in the bill (Section 2(a)(2)) ensures that a wide range of cases are covered, from federal laws to state and local common law protections. It puts more money back in the pockets of people who've been wronged, and that's a win for consumers.