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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?
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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To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.