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 is considered a capital loss and can be deducted on Schedule D.
To enter the loss due to a failed business purchase of a rental home, from the Federal Section of the individual tax return (Form 1040) select:
- 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 is the amount of earnest money the taxpayer put down on the property.
- The sales price is $0.
- The cost basis type is "Form 1099-B Not Received".
Additional Information: