In most cases, the forfeited deposit from a failed sale of rental property is considered ordinary income to you, the seller. This is because the deposit is essentially compensation for the buyer's failure to fulfill the purchase agreement, and it's not directly tied to the sale of a capital asset (which rental property used in a trade or business typically isn't).

Schedule E (Form 1040), Supplemental Income and Loss: This is the form used to report income and expenses from rental real estate. You would include the forfeited deposit as part of your rental income on this schedule.

• You would likely list it under "Other income" on Schedule E, as it's not rent. Be sure to clearly describe it as "Forfeited deposit from sale."

I found this in in AI. Sch E has no Other Income line. The above says to include forfeited deposit as part of the rental income.  There is no consistency.