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superbean2008
Level 2

How to report the cost of a terminated contract for investment property

I have entered a contract to buy an investment property. It has passed attorney review. Afterwards there were a few major problems discovered during home inspection and the seller refused to remediate. So the contract was terminated. During this process, I have spent close to $1000 to cover attorney fee, home inspection and other related expense.  How I am going to report these costs in Turbo Tax? 

I thought I could use SCHEDULE E but I never owned that property. It seems the form assumes you own the property so many fields do not make sense in my case (e.g., rental days, cost basis, depreciation etc)

 

Thanks very much

--Larry

6 Replies
martinmarks
Level 10

How to report the cost of a terminated contract for investment property

If you bought the property you could add the expenses to your basis and depreciate. Because you didn't buy the property the fees are miscellaneous itemized deductions on SCH A and are not deductible after tax reform.

Mike9241
Level 15

How to report the cost of a terminated contract for investment property

i disagree. I believe IRC section 1234A is applicable

Gain or loss attributable to the cancellation, lapse, expiration, or other termination of—
(1)a right or obligation (other than a securities futures contract, as defined in section 1234B) with respect to property which is (or on acquisition would be) a capital asset in the hands of the taxpayer, or
(2)a section 1256 contract (as defined in section 1256) not described in paragraph (1) which is a capital asset in the hands of the taxpayer,
shall be treated as gain or loss from the sale of a capital asset. The preceding sentence shall not apply to the retirement of any debt instrument (whether or not through a trust or other participation arrangement).

 

superbean2008
Level 2

How to report the cost of a terminated contract for investment property

Thanks Mike -- in this case which form I should use? It happened in 2020 I guess I need to amend my income tax return.

martinmarks
Level 10

How to report the cost of a terminated contract for investment property


@Mike9241 wrote:

i disagree. I believe IRC section 1234A is applicable


I disagree with your disagreement. There was no sale or exchange and more importantly there was no forfeiture of a deposit of any kind for failure to exercise an option....only various professional fees were incurred.

fanfare
Level 15

How to report the cost of a terminated contract for investment property

Even if you make a deposit of thousands and lose that because you don't go through with the purchase, you can't deduct that loss.

martinmarks
Level 10

How to report the cost of a terminated contract for investment property

Even if you make a deposit of thousands and lose that because you don't go through with the purchase, you can't deduct that loss.

Whatever.....the fact remains that the fees expended by @superbean2008 are NOT deductible.

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