Form 1041 - Forfeited Deposit - My Father's Estate

[karlatwanna]

I am the executrix of my father's estate.  I had a real estate contract on my father's personal residence with a prospective buyer who backed out of the contract and forfeited his deposit. 

Should I consider the forfeited deposit the estate received as income or a capital gain? 

Any help with this would be greatly appreciated. 

[M-MTax]

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@karlatwanna wrote:

Should I consider the forfeited deposit the estate received as income or a capital gain? 

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It's the former; the forfeited deposit would be ordinary income, the rationale being there was no sale or exchange and, hence, there could be no capital gain as a result. 

Here's an article that elaborates:

https://www.lexology.com/library/detail.aspx?g=271c4c92-cce7-4a89-895d-ab26d18f8ba2

[karlatwanna]

Thank you!! 😊