Lost Deposit

[Steve M]

A client paid $17000 as a deposit on a new build home for speculation. Because he couldn't sell another property in time, he lost his $17,000 deposit. Is there any deduction for this since he actually never closed on the property? Also he is an individual, not a corp or LLC, so I can't see writing it off as a business loss. Would value your opinions.

Steve M

[kcjenkins]

Was he intending to live in this house? Or planning to buy it then resell it?

[Steve M]

A client paid $17000 as a deposit on a new build home for speculation. Because he couldn't sell another property in time, he lost his $17,000 deposit. Is there any deduction for this since he actually never closed on the property? Also he is an individual, not a corp or LLC, so I can't see writing it off as a business loss. Would value your opinions.

Steve M

He was planning to resell it, but he used personal funds for the deposit. He didn't place the money into a corp or LLC.

[JohnH]

Do you know if he filled out any loan documents or applications claiming this was gonig to be his personal residence in order to get a lower interest rate? If so, he may have a problem.

[Steve M]

He was planning to resell it, but he used personal funds for the deposit. He didn't place the money into a corp or LLC.

I know he didn't apply for a loan for a personal residence; however, my question really regards can he claim the loss for a rental property because he never owned the property. He didn't lose money on the property because it was never his, so therefore, how can he claim the $17000 loss- or can he? I don't think it is a short term capital loss, so what would it be if anything?

Steve M

[Redneck]

I know he didn't apply for a loan for a personal residence; however, my question really regards can he claim the loss for a rental property because he never owned the property. He didn't lose money on the property because it was never his, so therefore, how can he claim the $17000 loss- or can he? I don't think it is a short term capital loss, so what would it be if anything?

Steve M

This might help: http://www.taxalmanac.org/index.php/Discus...te_deposit_lost

[OldJack]

Maybe you should just ask yourself, would the deposit have been deductible if he had not lost it?

[Steve M]

I know he didn't apply for a loan for a personal residence; however, my question really regards can he claim the loss for a rental property because he never owned the property. He didn't lose money on the property because it was never his, so therefore, how can he claim the $17000 loss- or can he? I don't think it is a short term capital loss, so what would it be if anything?

Steve M

Thanks everyone for your opinions. Especially Redneck for directing me to the Section 1234A . That was very helpful.

Steve M