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A taxable forfeit?

Shared from Tax Insider: A taxable forfeit?
By Mark McLaughlin, October 2021

Mark McLaughlin looks at the tax position of forfeited deposits when property deals fall through. 

Property transactions do not always go according to plan. For example, suppose a potential buyer pays the seller a deposit for a property. The purchaser has sufficient cash to pay the deposit but is subsequently forced to pull out of the deal as they were unable to obtain the necessary borrowings to meet the full purchase price.  

Lost property … and cash! 

Furthermore, suppose the purchase agreement provided that the deposit was non-refundable if the property deal fell through. Is the forfeited deposit a taxable receipt for the property owner? Is it an allowable deduction for the payer?  

In the above example, the prospective property buyer and seller are both individuals; the position for companies

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