Tax obligation on a failed home purchase

[Isobelcb]

Does a home owner pay tax on the deposit that they kept from a potential buyer who was unable to make settlement for personal reasons. The owner kept $33,000. Also is there any tax break for the potential buyer who lost their deposit.

[Juliane22 · Accepted solution]

Hi Isobelcb! As the party that kept the earnest money, yes it is taxable as ordinary income. Unfortunately, there is no deduction for the party that paid the earnest money if it was for a personal home. A deduction would only be allowed if it was a business or rental property. Hope that helps!