Is Earnest Money Tax-Deductible?

by Neil Kokemuller ; Updated July 27, 2017
Home mortgage interest and certain real estate taxes are deductible, but  earnest money isn't.

Earnest money is a deposit you make on a home at the time you submit a contract offer. This deposit isn't among the home expenses that you can deduct on your federal tax return.

Applied Earnest Deposit

Your earnest money deposit is intended to demonstrate the seriousness of your purchase offer to a home seller. When the seller accepts an offer, the earnest money goes into an escrow account until the property closing. At the time of the close, the amount reduces your down payment due. IRS Publication 530 specifically notes that "earnest money" isn't among the deductible home expenses.

Forfeited Earnest Money

In many cases, if you breach a purchase offer and don't close on the property, the seller is entitled to keep the earnest deposit. In addition to stating that the earnest money isn't deductible, IRS Publication 530 specifically notes that "forfeited deposits" aren't tax-deductible on your tax return.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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