A seller who retains both the earnest money deposit and the property must treat the forfeited deposit as ordinary income.
With regard to attorney fees, see this:
https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/can-i-deduct-legal-fees-on-my-taxes/...
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
