Can I deduct a loss incurred in a failed real estate property purchase transaction? Where?

[mossum]

I attempted to purchase a rental property in 2015 but had to forfeit my good faith deposit when the cost of the rehab work necessary to make it rentable just didn't pencil out. I believe I can deduct that loss, and forgot to then, so I'm now preparing an amendment to my 2015 taxes. How do I declare this loss?

[DexterS · Accepted solution]

In order to enter a capital loss in TurboTax  Premier (Windows) do the following:

• Federal Taxes > Wages & Income > Scroll Down to > Investment Income >
• Stock, Mutual Funds, Bonds, Other > Select > Start/Update
• Did you get a 1099-B or a brokerage statement for these sales? > Select > No
• Choose the type of investment you sold > Select > Everything else >
• Some Basic Info About This Sale > Property Description > Unsuccessful Business Startup > Net Proceeds > 0 > Date of Sale > Fill in date
• Tell Us How You Acquired This Property > Purchase > 
• Enter Purchase Information > Fill in as appropriate > Select > Continue
• Transaction recap > Select > Continue

[DexterS]

Yes, you can deduct these costs as a capital loss.

Here's what IRS Publication 535 says about an unsuccessful startup.

If your attempt to go into business is unsuccessful.   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories.

1. The costs you had before making a decision to acquire or begin a specific business. These costs are personal and nondeductible.  They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility.

2. The costs you had in your attempt to acquire or begin a specific business. These costs are capital expenses and you can deduct them as a capital loss.
   

[mossum]

Thank you. That answers the "may I" question, but not the "how do I" part. More advise, please. 🙂