If a taxpayer lost earnest money due to a failed personal home purchase, this loss cannot be claimed on the return.
If a taxpayer lost earnest money due to a failed business purchase of a rental home, the loss would be considered a capital loss can be deducted on the Schedule D.
To enter the loss due to a failed business purchase of a rental home, from the main menu of the 1040 select:
- Federal Section
- Income
- Schedule D/Form 8949 - Capital gains and losses reported on Schedule D
- Stocks, Mutual Funds, Cryptocurrency, Collectibles, etc.
- For 'Date Acquired', enter the date the money was placed in escrow.
- For 'Date Sold', select the Alternate Option and choose "Worthless Short Term" if the money was in escrow for less than 1 year or choose "Worthless Long Term" if the money was in escrow for 1 year or more.
- The cost would be the amount of earnest money you put down on the property.
- The sales price would be $0.
- Did not receive a 1099-B will be the cost basis type.
Additional Information: