Level 5

Question

Forfeit of deposit on rental property

Forum|Forum|5 years ago
December 4, 2020
23 replies
61 views

Hi --

My client is putting down $200,000 in earnest money on a large commercial rental property. If he loses that money, how do I report it?

I think it would be a capital loss, but a capital loss from a passive real estate investment would normally be suspended until the building is sold. In this case, the building is not being sold--since he never actually acquired it.

How to report this? And will he get to use the $200,000 loss against ordinary income in the current year?

Thank you!

ProSeries Basic

This topic has been closed for replies.

itonewbie

Level 15

How and why?

---------------------------------------------------------------------------------Still an AllStar

hclistonAuthor

Level 5

Didn't I explain the situation? What additional information are you looking for?

Thank you.

itonewbie

Level 15

You only said he lost it and explained what you think the tax treatment is but you didn't give any context as to why or on what terms your client lost the deposit, which may affect the answer to your question.

---------------------------------------------------------------------------------Still an AllStar

T

Terry53029

Intuit Community Champion

Just my two cents, but I think we are overthinking the issue. generally if you put money down for escrow as good faith money for a rental building, and you lose it (changed mind, you could not get financing, ETC.) it is a capital loss.

itonewbie

Level 15

I would digress with @Terry53029. Without knowing the terms and facts surrounding the "loss" of the earnest money, it would be presumptive to say that it should be taken and allowable as a capital loss.

---------------------------------------------------------------------------------Still an AllStar

T

Terry53029

Intuit Community Champion

Yes @itonewbie I agree with you that we don't have all the facts, and we rarely get them. That's why I've said in the past its hard to answer a question about taxes, because of so many variables

clr600

Level 7

Why in the first place would you put 200,000 dollars in earnest money down to purchase real estate and it not be refundable if the transaction not go through??

hclistonAuthor

Level 5

If it helps you think about it, imagine that the deposit is $1,000. My question is the same--capital loss or ordinary loss? And how to enter it in ProSeries Basic.

Thank you!

itonewbie

Level 15

@hcliston We have explained in different ways you did not provide us with sufficient facts and context. If you are not able to or willing to share with us more information, I'm not sure anyone here will be able to give you anymore suggestions.

If you are no longer interested in a technical discussion but are simply looking for guidance on input, that would be a different story.

---------------------------------------------------------------------------------Still an AllStar

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