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Posted by MTW on June 16, 2006, 2:59 am
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A.G. Kalman wrote:
> I will stick with my conclusion that the sale not having
> been completed leaves the potential buyer with an ordinary
> loss that can be taken on Schedule A subject to the 2% AGI
> limitation.
Pardon me jumping in here late.
I think one would need to carefully research the nature of
the "deposit" and specifically ~why~ it was lost. But, in
general terms, assuming that the deposit would have been
applied as part of a down payment had the transaction
succeeded, I would consider it a short term capital loss. I
say "capital" on the assumption that the failed transaction
would have the same character in this regard as if it had
succeeded. (By the same thinking, if the prospective
purchaser of the realty was a DEALER, then I'd guess the
loss to be "ordinary.")
However, I think the larger issue - and the one that the IRS
might be more likely to pursue if the loss came up on audit
- is establishing that there was truly a business or
investment intent with respect to the transaction. I'm sure
the IRS would try to argue that it was "personal" in nature
and therefore no loss was allowed.
MTW
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