Sold my personal house, deal fell through. Kept earnest money of $5000. Is that counted as income? Moved my belongings which cost just under $10000. Any write-off?

[cougar5vers]

Had moved my belongings thinking the house was sold.  At last minute, buyer's mortgage application was disapproved.  Total cost of moving my belongings to a new area, and then back to my house was just under $10000.  I kept their earnest money of $5000 which helped offset my personal cost a little.  So my question is whether I have to claim the earnest money as ordinary income and if so, is there any write-off for my expenses for moving my belongings back and forth?

[Phillip1 · Accepted solution]

The earnest money is taxable income. 

Unfortunately, there would be no deduction available in this situation.

[Critter]

In TurboTax, go to Less Common Income > Miscellaneous Income > Other Reportable Income.  You can describe the income as "retained earnest money deposit" or something similar.

This will cause the income to appear on line 21 of your 1040, which is correct.

[ashhdz17]

If you sell your personal residence that you lived in for at least 2 out of the last 5 years you do not need to report any income from the sale as long it is under $250,000 for single and $500,000 for married filing jointly. The tax law allows you to exclude your gain from income if under these limits but you also do not get to deduct any moving expenses

[Carl]

@ashhdz17 your statement is true, but not all inclusive.

If the seller receives a 1099-S then they are required to report the sale with no exceptions. Generally a 1099-S is issued to the seller if *any* proceeds are paid to the seller at the closing. But just because the seller is paid proceeds at the closing, does not mean they sold at a gain. However, it's assumed they did by the IRS until it's reported otherwise on the seller's tax return.

[TomD8]

@ashhdz17 — This thread is a year old and the original answer by @Phillip1  was correct.  There is no capital gain or loss in the situation described in the original question, because no sale took place. Therefore the “2 years out of 5” rule would not apply.  The retained earnest money is fully taxable.