Can earnest money lost when trying to purchase a home be deducted?
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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:
- Income
- Capital Gain/Loss (Sch D )
- New
- Enter description
- Date Acquired - enter the date the money was placed in escrow.
- 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.
- Cost would be the amount of earnest money put down on the property.
- The sales price would be $0.
Additional Information: