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Discussion:FORFEITED EARNEST MONEY real estate deposit lost

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Discussion Forum Index --> Tax Questions --> FORFEITED EARNEST MONEY real estate deposit lost


LisaPCB (talk|edits) said:

15 October 2006
My client has $5,000 in earnest money deposited on investment property. The closing never did go through and his $5,000 was forfeited. Can this be deducted? I have seen the discussions on this (very few) and I still cannot find any definitive answers. If deductible, is it a Schedule D capital loss? If so, how is it shown on the Schedule D? If not, where and how is it shown?

Also, this same taxpayer put down a $16,000 deposit on a personal residence, but found a better deal on another residence and forfeited the $16,000. Is this deductible? On Schedule A? If so, is it subject to the 2% of AGI or not? If not on Schedule A, where and how is it shown?

Any help is greatly appreciated!

JR1 (talk|edits) said:

October 16, 2006
I would say yes to the first, and yes, Sch. D...basis 5k, sale 0.

And no to the second.

Kathyt (talk|edits) said:

16 October 2006
I just had the opposite situation myself, on the seller side and this is what the seller had to do so I think if the seller reports it on sch D that the buyer would too. I agree nothing on the personal residence.

Sec. 1234A. Gains or losses from certain terminations Gain or loss attributable to the cancellation, lapse, expiration, or other termination of - (1) a right or obligation (other than a securities futures contract, as defined in section 1234B) with respect to property which is (or on acquisition would be) a capital asset in the hands of the taxpayer, or (2) a section 1256 contract (as defined in section 1256) not described in paragraph (1) which is a capital asset in the hands of the taxpayer, shall be treated as gain or loss from the sale of a capital asset. The preceding sentence shall not apply to the retirement of any debt instrument (whether or not through a trust or other participation arrangement).

LisaPCB (talk|edits) said:

18 October 2006
Thank you, JR1 and Kathyt for the help. Unfortunately, I was thinking the same thing on the personal!

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