Are condo owner’s lawsuit costs tax deductible?

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Gary owns a condominium in Pennant Village. After attending homeowner association meetings, he became convinced the association was being mismanaged and large profits were retained by the association rather than being used to repair deteriorating condo balconies. "In his view, members of the board refused to allow him to formally address the board, refused to allow him to vote at meetings, alleged that he did not actually purchase his property, called him a liar, harassed him in other ways, belittled him, derided him, and threatened him," the judge later reported. Purchase Bob Bruss reports online. Gary filed a lawsuit against the condo homeowner's association. He alleged the association funds were being mismanaged and he sought return of his share of the allegedly more than $500,000 in misappropriated funds. On his income tax returns, Gary deducted his costs of the lawsuit against the condo homeowner's association, even though his lawsuit failed. The IRS audited Gary's income t...