What is the correct tax treatment of the $11,000 in attorney’s fees?

Texas zoning laws and taxation
Sarah is an economist for Smith LLC. In January 2009, she
inherited three parcels of land in Texas County from her mother. Her mother’s
estate valued the parcels, which are all adjacent to each other and total 30
acres, at $15,750. Sarah thought the parcels were worth more than $15,750, so
she asked the estate’s appraiser why the parcels weren’t valued higher. The
appraiser told her that the zoning on the land allows only one residence every
two acres, which severely diminishes the resale value.

In 2010, Sarah applied to Texas County for a change in
zoning. The Texas County Board of Supervisors denied her application in
December 2010. Sarah filed a constitutional challenge to Texas County’s zoning
law in 2011. The board of supervisors denied her constitutional challenge.
Sarah filed an appeal of the denial in Texas County District Court on October
15, 2011. On November 5, 2011, the Texas County Board of Supervisors began
consideration of a new zoning law that would allow land, such as Sarah’s, a zoning
designation of two residences per acre. Sarah withdrew her appeal pending the
outcome of the new zoning law. On February 10, 2011, the new zoning law was
adopted. Sarah estimated that the value of the land increased to at least
$25,000 as a result of the rezoning.

Sarah incurred $11,000 in attorney’s fees and other costs in
challenging the zoning requirements. She paid half of the expenditures in 2010
and half in 2011. What is the correct tax treatment of the $11,000 in
attorney’s fees?Texas zoning laws and taxationSarah is an economist for Smith LLC. In January 2009, she
inherited three parcels of land in Texas County from her mother. Her mother’s
estate valued the parcels, which are all adjacent to each other and total 30
acres, at $15,750. Sarah thought the parcels were worth more than $15,750, so
she asked the estate’s appraiser why the parcels weren’t valued higher. The
appraiser told her that the zoning on the land allows only one residence every
two acres, which severely diminishes the resale value.In 2010, Sarah applied to Texas County for a change in
zoning. The Texas County Board of Supervisors denied her application in
December 2010. Sarah filed a constitutional challenge to Texas County’s zoning
law in 2011. The board of supervisors denied her constitutional challenge.
Sarah filed an appeal of the denial in Texas County District Court on October
15, 2011. On November 5, 2011, the Texas County Board of Supervisors began
consideration of a new zoning law that would allow land, such as Sarah’s, a zoning
designation of two residences per acre. Sarah withdrew her appeal pending the
outcome of the new zoning law. On February 10, 2011, the new zoning law was
adopted. Sarah estimated that the value of the land increased to at least
$25,000 as a result of the rezoning.Sarah incurred $11,000 in attorney’s fees and other costs in
challenging the zoning requirements. She paid half of the expenditures in 2010
and half in 2011. What is the correct tax treatment of the $11,000 in
attorney’s fees?

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