When the first buyer of my house defaulted, he agreed to forfeit $5,000 to compensate me for additional rental expenses I incurred due to his default. Is this taxable?

If yes, are any legal fees incurred to reach this settlement deductible?

posted

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:

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

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