@user17630568333 wrote:
From what I have read, we pay taxes in the year we gained control of the money and we received $50k of the Earnest Money in 2025 so would pay taxes on that portion in 2025 even though we will receive more and close in 2026.
I agree with @Bsch4477 , this should be treated as part of the sale in 2026.
While the rule of "constructive receipt" does exist, applying it to this situation can be complicated. Under your sales contract, do you keep the money even if the buyer defaults? Then it might be your income now. But if you would be required to return a portion or all of the money if the sale falls through, then it is not your money yet. And if the sale is contingent, it can be even more complicated. (For example, you keep the money if the buyer backs out for no reason, but you return the money if the sale fails to close because of a failure to pass some required inspection or other unforeseen problem--in that case, is it really your money now? Probably not.)
If you really do want to report this as income in 2025, then you should see a good tax accountant. There could be some issues with splitting the transaction.
