How to treat forfeited earnest money and legal fees

[ewchong]

I forfeited some earnest money deposit and legal and inspection fees for an investment property that I later decided against. Subsequently I bought another property. How should I treat these losses, as capital loss or investment expense, and apply against what income ?

[Vanessa A]

Yes, if this was an investment property, then you can deduct the losses a a capital loss.  A capital loss will offset capital gains, but if you do not have enough gains to be offset, it can offset up to $3,000 of ordinary income. 

See the answer by Champ Mike 9241 on how to enter the lost money on a failed investment property.