The subject line says it all - we started to build a house this past year and for complex reasons, didn’t close on it. We had $5000 in ernest money that was lost.
Can we deduct this (legally, of course), in some way, from our Federal taxes?
-B
Crap - pretend I spelled it earnest.
So now you know the importance of being earnest.
Since you don’t have a (serious) nibble I’ll take a WAG and give you a bump to boot, hoping a tax guy comes along.
You have suffered a financial loss as a result of a penalty for forfeiting on a contract, based on the minimal info you provided. Such a loss is not deductible on personal income tax. Costs related to buying a home that are deductible are taxes and finance charges (including points paid at settlement), but not money lost if you never even buy it. Other losses include casualty losses, typically including crime, natural or man-made disasters. Other deductions generally fall along the lines of expenses you incurred in the course of earning your income.
If you were a business and the loss was related to a business transaction there might be some basis for calling it a business expense but that doesn’t sound like your case.
Details can be found in Form 1040 Schedule A and Pulbication 529. Both links are PDF documents but if you Google them you can also view them as HTML.
Yup - that’s how it happened. There’s all sorts of extenuation circumastances and finger pointing but that’s the crux of it.
I just got off the phone with the IRS and they’re pretty much agreeing with you. Unless I was investing in this property as an investment, it’s not deductible.
Not unexpected but disappointing.
Sigh
Huked on foniks werked for me!