Personal Finance

Terminate Condo Purchase Agreement - tax writeoff?

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  • Feb 26th, 2010 6:04 pm
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[OP]
Jr. Member
Jul 24, 2008
128 posts
3 upvotes

Terminate Condo Purchase Agreement - tax writeoff?

My wife is in the condo sales biz and over the past year there have been several clients who have not closed on their purchases and walked away from their deposit. Recently, one of them asked my wife if they could write off the deposit they walked away from as a loss since it was an investment property. My wife didn't know whether the client meant a capital loss or a business income loss.

My first thoughts were "no" but figured I'd ask this forum. She has also asked her sales manager but, obviously, he is not in a position to be giving tax advice to others.

As an aside - the problems aren't necessarily over for these clients either as the development company can still go after the clients for any damages (difference between today's selling cost and the purchase price) plus carrying costs after the expected closing date.
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Deal Addict
Jun 11, 2005
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Whether it is a capital loss or business loss depends on many factors, including the intention of the investor, whether this was truly an investment property (vs. some intention to occupy as principal residence), whether the deposit was financed by borrowings, the frequency of real estate transactions, the investor's knowledge of the real estate industry, etc..

You probably know this already but your wife should not be giving tax advice either (for the same reasons her sales manager is not giving any advice). Tax matters are complicated and unless the advice giver is properly trained and qualified, the advice is often deficient (as can be seen at times when "free advice" is given on RFD). Even properly trained and qualified tax professionals can get it wrong.

If the investors can afford to walk away from a deposit, they surely should be able to afford an hour or two of a tax advisor's time.
[OP]
Jr. Member
Jul 24, 2008
128 posts
3 upvotes
Your comment about my wife giving tax advice is the exact same advice that I told her to tell the client. She says she just wants to lead them in the right direction...
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big_canuck wrote:
Feb 25th, 2010 3:11 pm
Your comment about my wife giving tax advice is the exact same advice that I told her to tell the client. She says she just wants to lead them in the right direction...
... and the direction is where the tax advisor is located!!! :cheesygri
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Sep 26, 2007
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mudd_stuffin wrote:
Feb 25th, 2010 3:14 pm
... and the direction is where the tax advisor is located!!! :cheesygri
lol, i'm interested in the right answer to this question.
i am going to ask my accountant friend.

will reply back with what she says, assuming i remember when i see her at work.
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xlfe wrote:
Feb 25th, 2010 3:32 pm
lol, i'm interested in the right answer to this question.
i am going to ask my accountant friend.

will reply back with what she says, assuming i remember when i see her at work.
That is a start but not all accountants possess the sufficient expertise to be a tax advisor!!
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May 24, 2006
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mudd_stuffin wrote:
Feb 25th, 2010 4:15 pm
That is a start but not all accountants possess the sufficient expertise to be a tax advisor!!
+1

Good luck asking an auditor... some can't even file their own tax returns. -.-

As for the OP, there are way too many factors that can affect this. Hard to give any concrete opinion here.
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Jun 11, 2005
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br0pbr0p wrote:
Feb 25th, 2010 5:11 pm
+1

good luck asking an auditor... Some can't even file their own tax returns. -.-
+1
Sr. Member
Jul 8, 2009
645 posts
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big_canuck wrote:
Feb 25th, 2010 2:57 pm
My wife is in the condo sales biz and over the past year there have been several clients who have not closed on their purchases and walked away from their deposit. Recently, one of them asked my wife if they could write off the deposit they walked away from as a loss since it was an investment property. My wife didn't know whether the client meant a capital loss or a business income loss.

My first thoughts were "no" but figured I'd ask this forum. She has also asked her sales manager but, obviously, he is not in a position to be giving tax advice to others.

As an aside - the problems aren't necessarily over for these clients either as the development company can still go after the clients for any damages (difference between today's selling cost and the purchase price) plus carrying costs after the expected closing date.
I don't see how. When you "walk away" you're breaking a contract. As you pointed out, the developer can sue you if their loss is greater than the deposit amount. If they did and won, could you write off the court judgement? The deposit is basically a pre-emptive settlement for the damages the developer suffers as a result of you backing out, so I think it would have the same status as a court judgement against you, i.e. not a tax write-off.

But IANAL and this isn't even something I have looked into, just my best guess.
Member
Dec 29, 2009
297 posts
4 upvotes
br0pbr0p wrote:
Feb 25th, 2010 5:11 pm
+1

Good luck asking an auditor... some can't even file their own tax returns. -.-

As for the OP, there are way too many factors that can affect this. Hard to give any concrete opinion here.
mudd_stuffin wrote:
Feb 25th, 2010 7:30 pm
+1
+2, especially auditors from big 4 firms, where they never touch a tax return until 2 or 3 years after they start (to get their tax hours for their designation).
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VAPCA wrote:
Feb 25th, 2010 10:25 pm
+2, especially auditors from big 4 firms, where they never touch a tax return until 2 or 3 years after they start (to get their tax hours for their designation).
You bring up a good point. The 100 hours (or whatever it is now) required in tax could have been spent on assembly/stapling returns together... and then a CA is qualified to practise tax? Then there is a mismatch of expectations where the general public thinks an accountant (CA or not) is generally qualified to give tax advice...

That is a bit ridiculous IMHO.

That is not to diss many accountants who are well qualified tax practitioners, probably including you and dutchca on this board.
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mudd_stuffin wrote:
Feb 25th, 2010 4:15 pm
That is a start but not all accountants possess the sufficient expertise to be a tax advisor!!
Ah she was not at work today, she is also a manager at an H&R Block.
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Jun 11, 2005
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xlfe wrote:
Feb 25th, 2010 10:49 pm
Ah she was not at work today, she is also a manager at an H&R Block.
Hmm, I don't think your imaginery female friend exists... based on your tax knowledge, you should not try to hide your bean-counting background!!! :D

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