A married couple put up for sale their primary residence. They received an offer and the buyer signed a contract. The contract called for a nonrefundable deposit of $250,000. Eventually, the buyer walked away from the sale so the sellers kept the deposit.
Is the $250K a capital gain? Ordinary income? When is it recoginized? Does the $250K just lower the cost basis?
Is the $250K a capital gain? Ordinary income? When is it recoginized? Does the $250K just lower the cost basis? =================== Ordinary income. No capital treatment because the capital asset wasn't actually sold.
It's not the same as an option in the securities markets, which can get capital treatment.
Suppose the price was $2.5 million. How does this situation differ from selling an option, price $250,000, to buy the house for $2.25 million? The option expired worthless rather than be exercised.
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