Loss on Investment in Condos

[joelgilb]

Well I have arrived in Vegas, sans the furniture which will arrive 1 week late. Colorado and Utah were beautiful, Iowa had major storms but is a boring drive anyway and Nebraska I drove through in the middle of the night so couldn't see much more than the road!

So back to work now.

And I have a question regarding a loss on an investment in a couple of condos:

My client was trying to purchase 2 condominiums to be used as rental properties. Due to a number of factors (mainly the stupidity of my client) the buys fell apart and my client lost his earnest money of $27,000. Now I am trying to figure out where in the 1040 I can write this off.

I thought of thought following possibilities:

1. schedule A as investment exp. this will limit the loss slightly in his case, but bottom line is about the same as a sched e loss and I think this is the best place at this point

2. thought of sched E but since he never purchased the condos, I don't believe this would be appropriate

3. Also thought of sched D, but this also limits the loss in the current year and again I am not sure this is an appropriate place as he did not purchase the condos he lost his money on.

Thx in advance

[Lion EA]

Enjoy your new home! But, I don't have an answer for you. Thought trying to get into a new business but not succeeding is Schedule D, but haven't had anything like this for years so don't remember where to look.

[Jake]

I have had similiar situations and write the loss off on the Schedule D as a capital loss. I view the earnest money or the "right" to purchase as an asset that can flucuate in value (depending on the value of the underlying property). The down side is that the loss is limited on thre individual return.

BTW I hope you enjoy Vegas. I lived in the Summerlin area for 4 years about 8 years ago.