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Capital Gains

Claim Lost Down Payment as a Capital Loss?

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Dear Tax Talk,

I attempted to purchase a business property and placed $15,000 cash down to the owner. However, it was a mixed-use property and no local banks would finance. My old bank in the city would not loan on real estate 50 miles outside of the city. I lost my money and the property. Can I claim this as a capital loss on my taxes?

Dear Diana,

You are not going to be able to deduct the loss of your down payment as a capital loss since the property you were going to acquire was going to be used as business property. However, the good news is that you will be able to deduct it as an ordinary loss on your tax return. Even though you never closed on the business property, the Internal Revenue Service will allow you to treat the loss in the same manner as if you had.

You can claim this $15,000 loss on your Form 1040 using Form 4797, Sales of Business Property, specifically on Page 1, Part II, line 10.

In the future, you may want to be sure that you are pre-qualified by a bank before putting your hard-earned money at risk. Additionally, a qualified real estate attorney may be able to assist you in avoiding this problem on future real estate transactions.

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