If you lost earnest money due to a failed personal home purchase, you cannot claim the loss on your return.
If you lost earnest money due to a failed business purchase of a rental home, you may claim the loss. The loss would be considered a capital loss you would write off on your Schedule D.
In the program, go to the:
- Federal Section
- Capital Gains and Losses
- Capital Gains and Loss Items
- For 'Date Acquired', enter the date the money was placed in escrow.
- For 'Date Sold', select the Alternate Option and choose "Worthless".
- You will choose "Worthless Short Term" if the money was in escrow for less than 1 year.
- You will choose "Worthless Long Term" if the money was in escrow for 1 year or more.
- The cost would be the amount of earnest money you put down on the property.
- The sales price would be $0.
- You will not receive a 1099-B for the transaction.