Question

Form 1041 - Forfeited Deposit - My Father's Estate

Forum|Forum|1 year ago
March 27, 2025
1 reply
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I am the executrix of my father's estate. I had a real estate contract on my father's personal residence with a prospective buyer who backed out of the contract and forfeited his deposit.

Should I consider the forfeited deposit the estate received as income or a capital gain?

Any help with this would be greatly appreciated.

M-MTax

@karlatwanna wrote:
Should I consider the forfeited deposit the estate received as income or a capital gain?

It's the former; the forfeited deposit would be ordinary income, the rationale being there was no sale or exchange and, hence, there could be no capital gain as a result.

Here's an article that elaborates:

https://www.lexology.com/library/detail.aspx?g=271c4c92-cce7-4a89-895d-ab26d18f8ba2