Where to enter Earnest Money?

[Starling1]

 Buy Sell real estate agreement stated that $10,000 a month would be paid to Seller until Closing or Buyer cancel the agreement.   Client(seller) received 150,000.00 of earnest money in 2022. Buyer canceled the contract.     

Where would I enter the earnest money received since no property was exchanged?

Thanks guys.

[Camp1040]

The buyer walked away from 150K? Assuming the money was not refundable I would report the income as breach of contract other Income. You will have to enter the breach of contract verbage. That is my thought.

[IRonMaN]

Do you need fancy verbiage to pick up other income?  As long as the $150,000 is reported is the IRS going to complain? 😉

As a side note, I wish I had enough cash lying around to just walk away for $150,000.  I would walk away from $1.50, maybe even $15.00, but $150,000?  That's rich for my blood 😅

[BobKamman]

That looks like an option to me.  For stock options, the proceeds from an option that is not exercised is either short-term or long-term capital gain, depending on when the option was sold.  I don't know about real estate, but if there is a question of whether $150K goes on Schedule D, I would research it thoroughly.  

And in what year was the contract canceled?

[Camp1040]

 I do need to be more succintt with my explainations, I meant to type in "breach of contract" on line 12 of the other income statement whick should then carry to Schedule 1. I agree the IRS would not care about all the goobly gock an attoney would write into a contract.😉

[taxes96786]

I would report it as other income with an explanation. It is not a breach of contract, as you explained it. It is a cancellation of contract which is different than a breach.

[Camp1040]

• Kinda sounds the same, breach, cancel. But as an Acme attorney stated in one of the posts the IRS doesn't care as long as they're getting their money.

[taxes96786]

look up the definition of each...not the same thing

[IRonMaN]

But they are both just as taxable as the other.

[BobKamman]

According to the Tax Court in 2018, it depends on whether the real estate was used in a trade or business.

Under Sec. 1234A(1), a taxpayer's gain or loss from the cancellation, lapse, expiration, or other termination of a right or obligation with respect to property will be a capital gain or loss if the property is a capital asset of the taxpayer. Capital assets do not include real property used in a trade or business. 

https://www.journalofaccountancy.com/issues/2016/dec/forfeited-deposits-are-ordinary-income.html 

[Camp1040]

With a little more info from the OP I believe that @BobKamman  will be the winner of the big fluffy teddy bear, or bare, or bar  or whatever the definition is.for the most correct answer!

[IRonMaN]

But Bob already is our big fluffy teddy bear.😜

[BobKamman]

I could tell you a story about the Tax Court judge who kept issuing orders about documents that "bared" a signature.  Until I pointed out that bore was the correct word.  But you would just find it boring.