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Forfeited Earnest Money

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    #1

    Forfeited Earnest Money

    Client forfeited deposit put down on purchase of residential property. Property was not for investment or business. No fraud on the part of the seller and contract clearly stated that money would be forfeited if buyer (client) backed out of deal. Client acknowledges they walked away from the deal.

    My research finds that client cannot claim tax deduction as a loss (wasn’t investment or business property) and that it would not be a bad debt (seller had no obligation to return money).

    Has anyone else had experience with this?

    PS: Did advise client to seek legal counsel to try some sort of settlement with seller.

    Thanks.
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    #2
    Originally posted by RichPA
    Client forfeited deposit put down on purchase of residential property. Property was not for investment or business. No fraud on the part of the seller and contract clearly stated that money would be forfeited if buyer (client) backed out of deal. Client acknowledges they walked away from the deal.

    My research finds that client cannot claim tax deduction as a loss (wasn’t investment or business property) and that it would not be a bad debt (seller had no obligation to return money).

    Has anyone else had experience with this?

    PS: Did advise client to seek legal counsel to try some sort of settlement with seller.

    Thanks.
    That's the best advice you gave him. SEEK LEGAL COUNSEL
    Everybody should pay his income tax with a smile. I tried it, but they wanted cash

    Comment

      #3
      I agree - good advice. Ran into this once with similar circumstances. Did anyone have a different result?

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