I'm dealing with the wife of a deceased taxpayer. The details are a little fuzzy since he didn't share this investment with us or his wife, but this is the background I was able to gather from the attorney involved:
Back in 2007, the taxpayer invested $90k for an interest in an LLC. The LLC borrowed about $3 million to build apartments. He signed personally along with the other investors. When the LLC couldn't pay it back, they went to the investors. According to the attorney I spoke to, he had a chance to settle, but received bad legal advice from another attorney. Apparently he was told not to worry since the investment was in another state. In 2012, the lender successfully entered a judgement against the taxpayer for the $3 million (he was the only remaining investor who didn't settle). In early 2017, the taxpayer and spouse had over $500k debited from their joint checking account as part of the judgement. A few months later, the taxpayer died. His spouse spent about $400k in legal fees related to case, resulting in a settlement where no further money was due.
The legal fees were related to the initial investment, but they were to prevent the lender from receiving the full judgement. I'm thinking any deductions related to the legal fees are capital since they're connected to the LLC interest. I'm not sure about the timing and which year(s) I should claim the capital loss. I'm assuming it would include the $500k debited and the $400k legal fees. She spoke to a CPA who believed she might be out of luck since the statute was up on the $90k loss. Any insight is appreciated.