Do I have to claim as income the "earnest money" I received when the buyers broke the agreement of sale?

Potential buyers of our home recently backed out of the agreement and signed over the $5000 earnest money to us. This was our primary residence (we have since moved out, but it is not a rental or investment property). We will be using this money to pay the extra mortgage payments until another buyer comes along, but should I be putting some of this aside for tax time?

Yes, you will need to claim it.

Yes, this is income and thus taxable.

Yes, the buyers breached the contract and the $5,000 check represents "Liquidated Damages"

This is why buyer's need to prove they are serious about buying real property.

If they walk, you keep the money.

Happens more than most people think.

Terry S.,

http://www.Welcome2Arizona.com

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