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

[marshall_drez]

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

[DawnC]

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.  

[marshall_drez]

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

[ToddL99]

Please clarify:

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

[marshall_drez]

Hi Todd,

1. 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
2. Who paid you the money and why? An LLC paid the $ as due diligence on a property they were going to purchase
3. Why was it split three ways? there are 3 landowners on the deed

ReplyMark as Best Answer

[#6]

1. 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
2. Who paid you the money and why? An LLC paid the $ as due diligence on a property they were going to purchase
3. Why was it split three ways? there are 3 landowners on the deed

[ToddL99 · Accepted solution]

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.