topic Is due diligence money taxable and if so, is it considered ordinary income? in Get your taxes done using TurboTax

Is due diligence money taxable and if so, is it considered ordinary income?

marshall_drez — Fri, 12 Mar 2021 19:57:30 GMT

If I received $333 for due diligence do I have to count this as income for tax purposes?

Re: Is due diligence money taxable and if so, is it considered ordinary income?

DawnC — Fri, 12 Mar 2021 20:31:21 GMT

Possibly, but it depends. Did you sell or attempt to sell some property? Why did you receive it; can you provide some more details? There is a section for Less Common Info if it is taxable.

Re: Is due diligence money taxable and if so, is it considered ordinary income?

marshall_drez — Fri, 12 Mar 2021 20:36:28 GMT

It is a parcel of land that would not perc so we got the due diligence money of $100 split 3 ways

Re: Is due diligence money taxable and if so, is it considered ordinary income?

ToddL99 — Tue, 16 Mar 2021 16:28:01 GMT

Please clarify:

Was this a payment for services you provided?
Who paid you the money and why?
Why was it split three ways?

Re: Is due diligence money taxable and if so, is it considered ordinary income?

marshall_drez — Tue, 16 Mar 2021 17:38:38 GMT

Hi Todd,

Was this a payment for services you provided? No. It was due diligence money for a piece of land that the person decided not to buy
Who paid you the money and why? An LLC paid the $ as due diligence on a property they were going to purchase
Why was it split three ways? there are 3 landowners on the deed

Re: Is due diligence money taxable and if so, is it considered ordinary income?

ToddL99 — Tue, 16 Mar 2021 18:04:13 GMT

This was a forfeited deposit - if you were holding the property as a capital asset (an investment), then the $100 would be treated as a capital gain.

Report the "sale" in the Stocks, Mutual Funds, Bonds and Other interview found under Federal > Income and Expenses > Investments.

Consider it as the sale of land with a cost basis of "0". Depending on how long you have held the property, it will be taxed as a long-term capital gain or a short-term capital gain.

From Forfeited Deposits: Under Sec. 1234A(1), a taxpayer's gain or loss from the cancellation, lapse, expiration, or other termination of a right or obligation with respect to property will be a capital gain or loss if the property is a capital asset of the taxpayer.