How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask socrateaser Your Own Question
socrateaser
socrateaser, Lawyer
Category: Tax
Satisfied Customers: 38244
Experience:  Retired (mostly)
10097515
Type Your Tax Question Here...
socrateaser is online now
A new question is answered every 9 seconds

I made a 12,500 earnest deposit on a potential home purchase

Customer Question

I made a 12,500 earnest deposit on a potential home purchase contract, but then had to back out and terminate the agreement. Although unfortunate I cannot recover any from the builder I signed a contract with, will any amount be recoverable or claimable as a loss credit, etc when I file 2016 taxes ?
Submitted: 8 months ago.
Category: Tax
Expert:  socrateaser replied 8 months ago.

Hello,

You could report it as an investment loss on Form 1040, Schedule D, as an investment loss, subject to the $3,000 annual deduction cap. The remainder of the $12,500 would carry forward to future years until exhausted.

On its face, a contract for the purchase of an asset is a "futures contract," and that is a valid investment purpose, which subjects the purchaser to the opportunity for gain or loss.

However, if audited, you would have to claim that your investment was not intended as a purchase of a principal residence, but rather for rental purposes -- because a loss against the sale of a principal residence is not deductible (and neither is the first $250,000 of any gain, if the property is held for at least two years).

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer (click 3, 4 or 5 stars) -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!

Expert:  socrateaser replied 8 months ago.

Errata: I wrote "futures contract" in my answer. I meant, "options contract" (option to exercise purchase, or not exercise, relinquish the $12,500 cost of the option and have no further liability).

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer (click 3, 4 or 5 stars) -- otherwise, I receive nothing for my efforts in your behalf.

Thanks again for using Justanswer!