There are actually two different ways of handling this issue. Both of the previous answers assume that you are not a real estate professional, that is, you do not buy and sell real estate as your main job. If you are not a real estate professional and you were buying a property to add to a small portfolio (or even just one rental) that you manage on the side from your main business, then this loss is treated as a “non-business bad debt“. Meaning, it is a bad debt that did not arise from your main business.
A non-business bad debt is a capital loss on schedule D that can be deducted against the rest of your income. The maximum amount you can deduct is up to the amount of your capital gains plus $3000, so if you have no capital gains to report, it might take you up to three years to realize the full benefit of a deductible $9000 loss.
However, to report a non-business bad debt, you must have exhausted all reasonable steps and insured that the debt is worthless. This generally means that you must sue, win, put the debt in collections, and verify that the debtor has no assets to pay you (is bankrupt, etc). Until you have taken all reasonable steps to make sure that the debt is uncollectible, you can’t take the deduction, and if you do not take all the reasonable steps and just give up, the debt is not deductible.
However, if you are a real estate professional, meaning that buying, selling, and managing real estate is your main business, and you report your business activities on schedule C, then I believe you can deduct the lost deposit as a business expense. If you later recover the deposit, then it would be taxable business income, because it would be a taxable recovery of a previous deduction.
