Generally, (I stress *GENERALLY*) if one is not "in the business" of real estate, and/or a real estate professional, the deposit money is just lost and there's no deduction.
For someone who is in the business of flipping houses for example, they report their business income/expenses on SCH C. In that case, the lost deposit may be deductible - provided other conditions are met of course.
For someone who is looking to buy rental property, yet they are not "in the business" of dealing with rental property (i.e.; investment property is not their primary source of income), that commonly gets reported on SCH E. There is no deduction of a lost deposit if they fail to acquire the property.
