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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 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.
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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?
