wrote:

- quote -

If he had purchased it, the deposit is part of the cost basis.

- quote -

But the purpose was business, not personal.

Consider a real estate flipper: There's a very hot real
estate market. A taxpayer puts down a $10,000 deposit to
buy a house, and gets offered $30,000 for the contract (I
knew someone who that happened to). He decides he could
make more money that way than working; so he takes the
$30,000 and puts down $10,000 deposits on 3 more houses.
Two of them get offers of $30,000 for the contract and he
sells; the third gets no offer and he walks away (paying the
$10,000 per contract as liquidated damages).

Why shouldn't the $10,000 he lost be a business deduction?

Seth

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If you had actually purchased the property, then the
purchase deposit would be a legitimate business or
investment expense and you would claim it on Schedule E.

However, since you did not actually purchase the property,
you would claim the deposit as a nonbusiness deduction on
Schedule A, line 22, which is subject to the 2% of adjusted
gross income floor.

Rudy
www.LizcanoTaxServicesLLC.com

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

It is for an investment property (residential) we were
planning to buy from the builder, but changed our mind due
to the market condition at closing time. If so, how to we
claim it, which form and line.

Thanks,
Paula

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >