Earnest money in '07 for purchase in '08

[Margaret CPA in OH]

Some here may recall my client who was 'forced' to sell his house for a university expansion. He came to an agreement and must be out of the house by May 31. Meanwhile, the university gave him a check for $35,000 noted as earnest deposit toward purchase. While I haven't seen the actual contract (client is legally blind and can't find it at the moment), I think there is nothing to be done with this deposit for 2007. Any other thoughts?

[BulldogTom]

I think it depends on if he has full, unfettered access to the funds, and if he would have to repay them if the deal fell through. Is the deal complete? I think you need a completed transaction before you recognize income.

I think you are on the right track.

Tom

Lodi, cA

[Margaret CPA in OH]

He actually has invested most of the money and is using much to try to locate a new home. It was designed, I believe, to allow him to have down payment money and moving cash as well as paying for taxis, etc. to find a home. So he does have unfettered access but the deal, while not yet legally and technically complete, is not realistically going to fall through. The university has scheduled demolition this summer. They gave him an extra 30 days to vacate but no more delays are possible. I am still inclined to not recognize it until 2008. Thanks for your input.

[Maribeth]

He actually has invested most of the money and is using much to try to locate a new home. It was designed, I believe, to allow him to have down payment money and moving cash as well as paying for taxis, etc. to find a home. So he does have unfettered access but the deal, while not yet legally and technically complete, is not realistically going to fall through. The university has scheduled demolition this summer. They gave him an extra 30 days to vacate but no more delays are possible. I am still inclined to not recognize it until 2008. Thanks for your input.

Margaret, I have had one of these. It is not income until the deal closes. So look to 2008 for any gain recognition.

Maribeth