Down payment to purchase

[Jesse]

I feel a headache coming on!

Dennis

Oh how I laughed - my family thinks I am so weird........this time of year I am!!

Was the $29,000 discharged in the bankruptcy? If so it is not really theft, but still an income producing loss. If not, has the client consulted a lawyer to see if any possibilities available to get the money back?

[jainen]

he suffered a capital loss

>>I would go for a business deduction on Sch E<<

In what year would you take that deduction for a cash basis taxpayer? The character of the payment is determined at the time of the payment, so suppose the contract had not failed--would the same payment still be an operating expense?

What did he get for his payment? He got a purchase contract, which was a capital asset that he could have sold or used for security on a loan. When the contract lost all value, he suffered a capital loss.

[DTS]

Down payment

First, thank you all for taking the time to help me out with this problem! Sorry I'm just now getting back to the thread.

I put a call into the client to see if I could gain further info for you. It was my misunderstanding that these were two pre-fabs for the vacant lot in AZ. They are two new regular homes in NC that he planned to rent out when completed.

Many customers have lost their money, but the builder is trying to find other homes, in other tracts for these people (???). I asked him to call the attorney handling this bk to see if it has been discharged. I'm not sure if this matters, seems like it would, but he is checking.

When he gets back to me, I'll post the answer and any additional info I come into. Maybe, with something more definitive, we can decide which form to put this on?

Dennis